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Last updated: July 22, 2026 · By White Metal Resources Editorial
Quick answer: A prohibited transaction is any dealing between your self-directed IRA and a "disqualified person" that IRC 4975(c)(1) lists in six categories. Those categories are a sale or exchange, a loan, the furnishing of goods or services, the transfer or use of IRA assets, fiduciary self-dealing, and fiduciary kickbacks.
Disqualified persons include you, your spouse, your ancestors, your lineal descendants, their spouses, and any entity you control. If your IRA engages in one of these transactions during a tax year, IRC 408(e)(2)(A) treats the account as no longer an IRA on the first day of that year, and the full balance is treated as distributed. In a precious metals IRA that usually means home-storage schemes, buying metal from a family member, or letting a disqualified person use the metal.
Short on time? The essentials
- Prohibited transactions live in IRC 4975(c)(1), six categories: sale or exchange, loan, furnishing of goods or services, transfer or use, fiduciary self-dealing, and fiduciary kickbacks.
- The tax code's list of disqualified persons in IRC 4975(e)(2) includes the IRA owner, the owner's spouse, ancestors, lineal descendants, spouses of lineal descendants, and any entity the owner controls 50 percent or more.
- For an IRA the excise tax under IRC 4975(a) and 4975(b) does not apply. Instead IRC 408(e)(2)(A) treats the account as no longer an IRA on the first day of the tax year of the violation.
- Under IRC 408(e)(2)(B) the account is treated as distributing all its assets on that first day, which triggers ordinary income tax on the full balance and a 10 percent additional tax if you are under 59.5.
- Home storage of IRA metals is not allowed. IRC 408(m)(3) requires physical possession by an approved trustee, and the U.S. Tax Court applied this rule against the taxpayers in McNulty v. Commissioner (2021).
- Buying metal from a disqualified person, selling metal to your own IRA, or letting a family member use IRA metal are all prohibited transactions under IRC 4975.
- Acquiring a coin that fails the IRC 408(m) fineness test (gold .995, silver .999, platinum .9995, palladium .9995) counts as a collectible and is a deemed distribution equal to cost.
- American Silver, Gold, Platinum, and Palladium Eagles qualify separately under the 31 U.S.C. section 5112 carve-out, even where a coin misses the fineness minimum.
- Common precious metals IRA traps: home safe storage, an LLC checkbook structure that pays a family member, buying coins already owned personally, or reimbursing a spouse for the purchase.
- Prevention is structural: use an IRS-approved non-bank trustee or bank custodian, an IRS-approved depository, and a dealer at arm's length from your household.
This page explains the prohibited-transaction rule that governs every self-directed IRA, including a precious metals IRA that holds silver, platinum, palladium, or gold. Below we cover the six categories in the tax code, who counts as a disqualified person, what happens if the rule is broken, and the specific traps that show up in white-metals accounts. Every rule cites the statute or the IRS source. This is education, not tax or legal advice.
What are prohibited transactions in a self-directed IRA?
A prohibited transaction is any dealing between your IRA and a "disqualified person" that falls into one of the six categories in Internal Revenue Code section 4975(c)(1). The rule exists to keep IRA assets working for retirement and not for the account owner today, or for the owner's family or controlled businesses.
The list applies to every IRA the same way, regardless of what the account holds. A traditional brokerage IRA rarely brushes against it, because a broker cannot easily sell you your own house. A self-directed IRA can and does, because you pick the assets, the counterparties, and the depository.
For a precious metals IRA the rule is the reason for the whole structure. A licensed custodian holds title. An IRS-approved depository stores the metal. You never take physical possession before a qualified distribution. Each of those pieces exists so that the account never ends up doing business with you or your family.
Who counts as a disqualified person?
The list of disqualified persons is in IRC 4975(e)(2). It reaches farther than most savers assume, which is why family and business ties are the two areas where trouble starts.
The core list, as the statute reads, includes a fiduciary of the plan, a person providing services to the plan, an employer whose employees are covered, and an employee organization whose members are covered. It also covers any person who owns 50 percent or more of a corporation, partnership, or trust, and any officer, director, 10 percent shareholder, or highly compensated employee of one of those entities.
For your own IRA the fiduciary is you. The family reach is defined by IRC 4975(e)(6): "the family of any individual shall include his spouse, ancestor, lineal descendant, and any spouse of a lineal descendant." Your parents, your grandparents, your children, your grandchildren, and the spouses of your children and grandchildren are all disqualified persons for your IRA.
| Category | Who this covers | Statute reference |
|---|---|---|
| The account holder | You, as fiduciary of your own self-directed IRA | IRC 4975(e)(2)(A) |
| Family | Spouse, ancestors, lineal descendants, and any spouse of a lineal descendant | IRC 4975(e)(2)(F) and 4975(e)(6) |
| Service providers | Any person providing services to the plan | IRC 4975(e)(2)(B) |
| 50 percent-owned entities | Any corporation, partnership, or trust in which the account holder or family owns 50 percent or more | IRC 4975(e)(2)(E) and (G) |
| Officers and 10 percent shareholders | Officers, directors, 10 percent shareholders, or highly compensated employees of the entities above | IRC 4975(e)(2)(H) |
Source: 26 U.S.C. section 4975(e)(2) and (6), Cornell Legal Information Institute. Checked June 2026.
Two people fall outside the family list on purpose. A sibling and a cousin are not listed in IRC 4975(e)(6). That does not make transactions with them a good idea, because other categories still apply, but the family-per-se ban stops at parents, spouse, children, grandchildren, and their spouses.
What are the six prohibited-transaction categories?
IRC 4975(c)(1) lists six categories. Any direct or indirect dealing that fits a category is a prohibited transaction, even when it looks reasonable at market price.
| Statute | Category | Precious metals IRA example |
|---|---|---|
| 4975(c)(1)(A) | Sale, exchange, or leasing of any property between the plan and a disqualified person | Selling silver you already own personally to your own IRA, at any price. |
| 4975(c)(1)(B) | Lending of money or other extension of credit | Your IRA lending cash to your spouse or your wholly owned LLC. |
| 4975(c)(1)(C) | Furnishing of goods, services, or facilities | Your parent's coin-dealer business sells IRA-eligible bullion to your IRA. |
| 4975(c)(1)(D) | Transfer to, or use by or for the benefit of, a disqualified person of the income or assets of the plan | Storing IRA metals in a home safe or letting a family member use them. |
| 4975(c)(1)(E) | Act by a fiduciary who deals with plan assets in his own interest or account | You direct your IRA to buy from a dealer that pays you a personal commission. |
| 4975(c)(1)(F) | Receipt of consideration by a fiduciary from any party dealing with the plan | You accept a personal rebate from a dealer that just sold to your IRA. |
Sources: 26 U.S.C. section 4975(c)(1), Cornell Legal Information Institute; IRS Issue Snapshot on collectibles in individually directed qualified plan accounts. Checked June 2026.
The IRS Issue Snapshot on collectibles points at category (D) in particular for physical assets. It notes that a "self-dealing prohibited transaction" is described in IRC 4975(c)(1)(D), which is the "transfer or use" category. That is the category most white-metals-IRA cases turn on.
What happens if a prohibited transaction occurs in your IRA?
For an IRA the answer is unusually harsh. IRC 4975(a) imposes a 15 percent excise tax on the amount involved for each year in the taxable period. IRC 4975(b) adds a 100 percent tax if the transaction is not corrected within that period. Both are paid by the disqualified person who participated.
An IRA does not pay these excise taxes. IRC 4975(c)(3) exempts an IRA when IRC 408(e)(2)(A) applies. What 408(e)(2)(A) does instead is far worse for the owner: the account "ceases to be an individual retirement account as of the first day of such taxable year."
IRC 408(e)(2)(B) then treats the account as distributing all its assets on that first day. In plain English: the entire IRA balance becomes taxable income for the year of the violation, valued as of January 1, regardless of when the prohibited transaction happened.
Two follow-on effects usually stack on top. If you are under age 59.5 with no qualifying exception, the 10 percent additional tax under IRC 72(t) applies to the deemed distribution. State income tax, where it applies, is layered on top of the federal treatment. See the 10 percent early-withdrawal rule for how that piece works.
Picture a saver at age 52 who has $200,000 in a self-directed precious metals IRA. In March, the saver takes the silver coins home from the depository and keeps them in a household safe. The physical-possession rule under IRC 408(m)(3) is broken, which is a category (D) transfer or use event under IRC 4975(c)(1)(D).
- Under IRC 408(e)(2)(A) the account ceases to be an IRA on January 1 of that year, not on the day the coins moved.
- Under IRC 408(e)(2)(B) the account is treated as distributing all its assets on January 1, so the deemed distribution is $200,000, taxed as ordinary income.
- Because the saver is under age 59.5, the 10 percent additional tax under IRC 72(t) applies to the $200,000: $20,000 of extra federal tax on top of ordinary income tax.
The figures are illustrative and use only the statutory rates and the fact pattern above. Actual outcomes depend on the taxpayer's bracket, state, and any correction filed with the IRS. This is not tax advice. Consult a licensed tax advisor.
How the rule applies to a precious metals IRA
A precious metals IRA has one built-in prohibited-transaction guardrail that a real-estate IRA or a private-equity IRA does not. IRC 408(m)(3) requires that the metal be in the "physical possession of a trustee" that is a bank or an approved non-bank trustee. That single rule blocks the most common trap, home storage.
The IRS Issue Snapshot on collectibles is explicit. It says that a bank or approved non-bank trustee must keep physical possession of the bullion for it to fall outside the collectibles definition of IRC 408(m). It also cites IRC 4975(c)(1)(D) as the self-dealing category most in play when the physical-possession rule is broken.
The Tax Court applied this line in McNulty v. Commissioner, 157 T.C. 10 (2021). The taxpayers used a self-directed IRA and an IRA-owned LLC to buy American Eagle coins, then kept them at home. The court held that the coins were treated as distributed at the time they were received by the taxpayer, and it upheld the deficiency. Home storage of IRA metals is not a workable structure, whatever the marketing promises.
The fineness rule is a second guardrail. IRC 408(m)(3)(B) accepts gold, silver, platinum, or palladium bullion at a fineness that meets or exceeds the commodity contract-market minimums, commonly cited as gold .995, silver .999, and platinum and palladium .9995.
Acquiring a coin or bar that fails the test is treated as a deemed distribution at cost under the IRS Issue Snapshot. That sits on the collectibles theory rather than as a full account termination. See the fineness rule and the collectibles rule for detail.
American Silver, Gold, Platinum, and Palladium Eagles qualify under a separate carve-out for United States coins at 31 U.S.C. section 5112. That carve-out lives in IRC 408(m)(3)(A), not in the fineness test, which is why the Gold Eagle at 22 karats is IRA-eligible even though it sits below the .995 gold minimum.
Common white-metals-IRA mistakes that trigger the rule
The traps that show up in this niche fall into a small set. Each traces to one of the six IRC 4975(c)(1) categories or to the collectibles test.
- Home safe or personal storage. Category (D) transfer or use, per the McNulty holding. This is the single most common claim in tax court on IRA metals.
- Buying metals you already own personally, and selling them into your IRA. Category (A) sale or exchange between the plan and a disqualified person.
- Buying from a family member's dealer at any price. Category (C) furnishing of goods, because the family member is a disqualified person under IRC 4975(e)(6).
- Having the IRA reimburse you for a personal purchase of metals. Category (A) plus category (D), because the IRA effectively bought the property from you and transferred cash to you.
- An IRA-owned LLC ("checkbook IRA") that pays a disqualified person. The LLC does not shield you: category (E) fiduciary self-dealing applies to any distribution that benefits a disqualified person. See why checkbook structures are risky for metals.
- Buying a non-eligible coin, such as a graded numismatic piece not on the 31 U.S.C. section 5112 list. This is a deemed distribution equal to cost under the collectibles rule, not a full account termination, but the tax consequences are still material.
- Using IRA cash for personal expenses or letting a family member use IRA cash. Category (D) transfer or use of assets to a disqualified person.
Two of these deserve special attention on white metals accounts. Home storage is the loudest pitch in the market and the fastest way to lose the IRA. Buying from a family-owned dealer is the quiet mistake nobody flags at intake, because the transaction looks like any other purchase.
How to structure the account so the rule is never in play
The prevention playbook is short, structural, and unambiguous. Five steps keep the account on the right side of the rule from day one.
- Use an IRS-approved custodian, not a self-run structure. The custodian must be a bank or an IRS-approved non-bank trustee under IRC 408(a). See what a self-directed IRA custodian does.
- Store the metal at an IRS-approved depository. Never at home, never in a bank safe-deposit box in your name, never with a family member. IRC 408(m)(3) requires physical possession by the trustee.
- Buy only IRA-eligible coins and bars. Check the fineness (gold .995, silver .999, platinum .9995, palladium .9995) or the 31 U.S.C. section 5112 carve-out for United States coins.
- Deal only with an arm's-length dealer. The dealer should not be you, your spouse, your parents, your children, your grandchildren, or an entity any of them controls at 50 percent or more.
- Keep every wire, invoice, and account statement. If the IRS ever asks, the paper trail proves the account holds title, the depository stores the metal, and no cash or metal touched a disqualified person.
Two account habits sit alongside those five. Do not commingle personal and IRA metal at any point in the chain of custody. Do not use an IRA-owned LLC to route around the custodian, because the LLC does not change who counts as a disqualified person under IRC 4975(e)(2).
Fee drag, small accounts, and the pressure to cut corners
Fees do not cause prohibited transactions on their own. They do change the incentive to cut corners: a small account under heavy fixed cost is where home-storage and checkbook pitches sound most attractive. Knowing the drag ahead of time makes the compliant structure easier to accept.
The calculator below estimates how a flat annual cost compounds against an account balance over time. Enter a balance and an annual fee rate to see the drag.
Precious metals IRA fee-drag calculator
Precious metals IRAs charge mostly flat dollar fees (setup, annual custodian, storage). Flat fees take a much bigger bite out of a small account than a large one. Enter your numbers to see the drag.
Estimate only. Fee amounts vary by provider and are often not published; enter figures you confirm in writing. This tool ignores metal price changes and the dealer spread, which also affect returns. Not financial advice.
Worth knowing: the compliant structure (custodian plus approved depository plus arm's-length dealer) is the cheapest, safest form over any horizon that matters, because the alternatives end in a deemed distribution of the full account. See fees explained and custodian fees vs dealer markups for what to compare in writing before you sign.
When a self-directed precious metals IRA is a bad idea
A balanced page names when this account works against you. Prohibited-transaction risk is one of the reasons a self-directed metals IRA fits some savers and not others.
It is usually a bad idea in these situations:
- You want to hold the metal yourself. The rule is unbending. If personal possession matters to you, buy metal outside a retirement account. See physical metals versus an IRA for the trade-off.
- You want to trade with family or a family-owned business. The disqualified-person reach in IRC 4975(e)(2) and (6) makes those deals unworkable inside an IRA.
- A pitch centers on a home-storage IRA or a checkbook-IRA-plus-LLC-plus-safe structure. Both routes are the fact pattern the Tax Court dismissed in McNulty. Walk away.
- Your balance is small against the fixed compliance cost. Custodian, depository, and dealer costs erode small accounts quickly. That does not justify a non-compliant structure, but it does raise the question of whether the account fits at all.
- You cannot document the chain of custody. If the metal is expected to move outside the depository during the year for any reason, you are already outside IRC 408(m)(3).
If one of these describes you, slowing down is the sensible call. There is no CTA in this section on purpose. Nobody can predict where metal prices will go, and a compliant account run for the wrong reasons will still be a compliant account holding the wrong asset for you.
Prohibited-transaction questions, answered
What is a prohibited transaction in a self-directed IRA?
A prohibited transaction is any dealing between the IRA and a disqualified person that falls in one of the six categories in IRC 4975(c)(1). Those categories are sale or exchange, loan, furnishing of goods or services, transfer or use, fiduciary self-dealing, and fiduciary kickbacks. The list applies to every IRA the same way, whether it holds stocks, real estate, or precious metals.
Who is a disqualified person for my IRA?
Under IRC 4975(e)(2) the list includes you as fiduciary, your spouse, your ancestors, your lineal descendants, and any spouse of a lineal descendant. It also includes any service provider, employer, or 50 percent-owned entity, and their officers, directors, and 10 percent shareholders. Siblings and cousins are not on the family list, but other categories can still reach them.
What happens to my IRA if I make a prohibited transaction?
Under IRC 408(e)(2)(A) the account ceases to be an IRA as of the first day of the tax year the violation occurred. Under IRC 408(e)(2)(B) the account is treated as distributing all its assets on that first day, which triggers ordinary income tax on the full balance and, if you are under 59.5, the 10 percent additional tax under IRC 72(t).
Is home storage of IRA silver, platinum, or palladium ever allowed?
No. IRC 408(m)(3) requires that the metal be in the physical possession of an approved trustee. Home storage is treated as a distribution and, on the facts, has been treated as a category (D) transfer or use event. The Tax Court applied this rule against the taxpayers in McNulty v. Commissioner, 157 T.C. 10 (2021). A "home storage IRA" is not a recognized IRS structure.
Can my spouse or parent sell precious metals to my IRA?
No. IRC 4975(e)(6) puts your spouse, your ancestors, your lineal descendants, and any spouse of a lineal descendant on the family list. A sale from any of them to your IRA is a category (A) prohibited transaction under IRC 4975(c)(1)(A), even at market price. A parent's coin business counts as furnishing of goods under category (C).
Does a checkbook IRA or IRA-owned LLC change the rule?
No. The disqualified-person list under IRC 4975(e)(2) reaches the LLC and any of its dealings that benefit a disqualified person. A checkbook structure does not add any protection against the prohibited-transaction rule. It usually adds risk by making it easier to pay a family member or a personally owned business by mistake.
What if I buy a coin that is not IRA-eligible?
Acquiring a non-eligible coin, such as a graded numismatic piece outside the 31 U.S.C. section 5112 carve-out or a bar below the fineness minimum, is treated as a deemed distribution equal to cost under the IRS Issue Snapshot on collectibles. That is narrower than a full account termination, but still creates ordinary income tax on the amount, plus the 10 percent additional tax if you are under 59.5.
Can a prohibited transaction ever be corrected?
Under IRC 4975(b) the excise tax for a non-IRA plan escalates from 15 percent to 100 percent if the transaction is not corrected within the taxable period. For an IRA, IRC 408(e)(2)(A) treats the account as ceasing to be an IRA on the first day of the year, which does not roll back through routine correction. Consult a licensed tax advisor before assuming a fix is available.
Sources
- Cornell Legal Information Institute, 26 U.S.C. section 4975 (tax on prohibited transactions). Checked June 2026.
- Cornell Legal Information Institute, 26 U.S.C. section 408 (individual retirement accounts, including 408(e)(2) and 408(m)). Checked June 2026.
- IRS, Investments in collectibles in individually directed qualified plan accounts (Issue Snapshot). Checked June 2026.
- IRS, Publication 590-B, Distributions from Individual Retirement Arrangements. Checked June 2026.
- IRS, Required Minimum Distributions FAQs. Checked June 2026.
- IRS Newsroom, 2026 retirement plan and IRA limits (Notice 2025-67). Checked June 2026.
