What are the penalties for a prohibited transaction in both a Self-Directed IRA and Solo 401(k)

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Penalties for an IRA can be a distribution of the entire Self-Directed IRA. Penalties for a Solo 401(k) can be up to 15%.

Penalties for Self-Directed IRAs

Unfortunately, the penalties for making a prohibited transaction in your Self-Directed IRA can be pretty stiff. It can be a total distribution of your IRA if you do not comply, which for a Traditional IRA, can mean increasing your taxable income by the entire value of the IRA. 

If you are below 59 1/2, this could mean paying an early distribution 10% penalty. 

It applies only to the IRA in question. If you commit a prohibited transaction in one IRA, the others will be safe from distribution. 

Penalties for Self-Directed 401(k)s

For Self-Directed 401(k)s, the penalty of 15% can apply to your plan for a prohibited transaction. Failure to comply or fix a mistake could mean the distribution of your entire program.



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