The Derivative Project

What is Self-Dealing in a Qualified Plan?

What is Self-Dealing in a Qualified Plan?

The IRS is very tough on individuals that “self-deal” in an IRA.  In sum, you cannot buy a Condo in Lake Tahoe, place it in your IRA, and then use it for your own ski vacations.
“Anything that smacks of self-interest or occurs between parties in interest has the potential to be considered a prohibited transaction.”

Retirement investors in 401k’s and IRA’s or SEP’s have a base level of protection by ERISA standards.

Here are some ERISA standards to protect investors:
  • Trustees must administer the plan for the exclusive benefit of plan participants and their beneficiaries.
  • Trustees must act in accordance with the standard of care established under ERISA, that is, the skill, prudence and diligence . . . that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims
  • Trustees must diversify plan investments in order to minimize the risk of large losses (unless it is clearly prudent not to do so).
  • Trustees must not permit the plan to engage in the “prohibited transactions” described in ERISA, which include, subject to specific statutory and administrative exemptions, any sale, exchange or transfer of assets, goods of services between the plan and any “party in interest” (employer, employee, fiduciary, persons providing services to the plan and related parties).
The recent /files/6/7/3/9/5/268450-259376/SEC_Investor_Advisory_Comments_11213.pdf”>Letter on Money Market Reform and “Self-Dealing”” to the SEC Investment Advisory Committee and Financial Stability Oversight Council today.