A prohibited transaction under IRC Section 4975 is any deal between your IRA and a “disqualified person,” including you, your spouse, your children, or anyone who exercises control over your account. A single violation causes the IRS to treat your entire IRA as distributed on January 1 of that year. The full balance becomes ordinary taxable income, plus a 10% early-withdrawal penalty if you are under age 59½. The 2021 Tax Court case McNulty v. Commissioner is the clearest example: the account holder lost a $730,000 gold IRA because she stored the coins at home.
Section 4975 of the Internal Revenue Code lists six categories of banned dealings between an IRA and a disqualified person, including the account owner, spouse, children, and anyone with control over the account. A single breach disqualifies the entire IRA on January 1 of that year. The full balance becomes ordinary income, plus a 10% early-withdrawal penalty under age 59 and a half. McNulty v. Commissioner (2021) made the rule concrete: a $730,000 home-storage gold IRA was wiped out.
What IRC Section 4975 Actually Says
IRC Section 4975 was enacted in 1974 as part of ERISA to protect retirement accounts from self-interested dealing. The statute applies to all IRAs, 401(k)s, and other qualified retirement plans, not just gold IRAs. Gold IRA holders encounter it more often because the physical nature of precious metals creates opportunities for improper personal use that paper investments do not.
The law imposes a two-tier excise tax on prohibited transactions. The initial tax is 15% of the “amount involved” in the transaction, assessed against the disqualified person who participated. If the transaction is not corrected within the taxable period, an additional 100% tax applies. More critically, the IRS can disqualify the entire IRA under IRC 408(e)(2), treating the full account balance as a taxable distribution in the year the prohibited transaction first occurred.
The full statute is publicly available at IRS.gov. IRS Publication 590-B covers the practical application for IRA holders.
Who Is a “Disqualified Person”?
IRC 4975(e)(2) defines the category broadly. The statute was written to catch not just direct self-dealing, but also transactions routed through family members and business associates who could indirectly benefit the account owner.
| Category | Who Is Included | Practical Example |
|---|---|---|
| The IRA owner | You, the account holder | Selling personally owned gold to your IRA |
| Spouse | Current legal spouse | Transferring IRA coins to a safe in the marital home |
| Lineal descendants | Children, grandchildren (and their spouses) | Having your son store IRA gold in his company vault |
| Lineal ascendants | Parents, grandparents | Buying gold through your IRA from a company your father owns |
| Fiduciaries | Anyone exercising discretionary authority or control over the IRA | An investment advisor who self-deals on your account |
| Service providers | Individuals providing services to the IRA for compensation | Your IRA’s advisor also selling you gold |
| 50%-plus controlled entities | Any entity in which a disqualified person owns 50% or more | A company you control purchasing gold from your IRA |
The IRS does not require intent. A well-meaning transaction between your IRA and a family member qualifies as prohibited just as readily as a deliberate scheme. The structure of the deal matters, not the motivation behind it.
The Six Prohibited Transaction Categories
IRC 4975(c)(1) lists six specific transaction types that are automatically prohibited. Any single one triggers disqualification, regardless of the amounts involved or whether the other party received fair market value.
Sale, Exchange, or Lease
Any sale or exchange of property between the IRA and a disqualified person. This covers selling personally owned gold to your IRA, buying IRA-held gold yourself at any price, and leasing IRA-owned space from a family member.
Lending Money or Credit
Loans between the IRA and a disqualified person in either direction. Using IRA assets as collateral for a personal loan is also prohibited. Under IRS Publication 590-B, the pledged portion is treated as a distribution in the year of pledging.
Furnishing Goods, Services, or Facilities
Providing services to the IRA for personal compensation, or having the IRA pay a family member to manage the gold. A self-directed IRA LLC where you act as a compensated manager is the most common vehicle here.
Transfer or Use of IRA Assets
Using IRA property for personal benefit in any way, including temporary possession. Taking IRA gold coins home “for safekeeping,” even briefly, qualifies as a transfer of use under this category.
Self-Dealing by a Fiduciary
Any fiduciary acting in their own interest rather than the IRA’s interest. An IRA trustee steering assets toward a company they personally control is the textbook example the statute was drafted to address.
Receipt of Kickbacks
A fiduciary or service provider receiving consideration from a third party in connection with IRA transactions. This targets arrangements where advisors receive undisclosed payments for steering clients toward specific gold dealers.
Self-Dealing: The Most Common Traps in Gold IRAs
Self-dealing shows up in predictable patterns in the gold IRA context. Each one appears reasonable on the surface, which is partly why they catch investors off guard.
Buying Gold You Already Own
You cannot sell gold you personally own to your IRA, even at verifiable fair market value. IRC 4975 does not provide an arm’s-length exception for transactions between you and your own retirement account. The moment personally owned gold enters the IRA, the transaction is prohibited regardless of price.
Purchasing from a Family-Controlled Business
If you or a disqualified family member controls 50% or more of a precious metals dealer, your IRA cannot purchase from that dealer. Some investors form family LLCs to hold gold and then direct their IRA to purchase from the LLC. The statute looks through the structure and treats the transaction as one between the IRA and a disqualified person.
Using IRA Gold as Collateral
Pledging gold held in your IRA as security for a personal or business loan is prohibited under category 2 above. The IRS treats the pledged portion as a distribution in the year of pledging, per IRS Publication 590-B. This applies even when the pledge is not exercised and the loan is repaid on schedule.
Compensating Yourself as LLC Manager
A self-directed IRA LLC is a legal structure when used correctly. Paying yourself a management fee from IRA assets as the LLC’s manager crosses into furnishing services for personal compensation, which is prohibited transaction category 3. The IRS does not recognize the LLC as a separate entity from the IRA owner for this purpose.
- Is the other party to the transaction you, your spouse, your children, your parents, or a business you control 50% or more? If yes: prohibited.
- Will you personally handle or receive the gold at any point outside an IRS-approved depository? If yes: prohibited.
- Is anyone in your immediate family being paid from IRA funds in connection with this transaction? If yes: prohibited.
- Are you pledging IRA assets as security for any personal or business obligation? If yes: prohibited.
- Is the IRA purchasing gold from a dealer in which you or a family member holds a 50%-plus ownership stake? If yes: prohibited.
- Is any advisor or service provider receiving undisclosed compensation for directing IRA funds toward a specific dealer? If yes: prohibited.
Consequences: What Happens When the IRS Identifies a Prohibited Transaction
The financial consequence of a single prohibited transaction can wipe out an entire retirement account. The IRS does not limit the penalty to the amount of the specific transaction. It disqualifies the entire IRA.
Step 1: The IRA Is Deemed Distributed
Under IRC 408(e)(2), an IRA that engages in a prohibited transaction ceases to be an IRA as of the first day of the taxable year in which the transaction occurred. The entire fair market value of the account on January 1 of that year is treated as a distribution to the account holder.
Step 2: Full Ordinary Income Tax on the Distribution
The full distribution amount is added to your ordinary taxable income for that year. On a $500,000 gold IRA, this means $150,000 or more in federal income tax depending on your bracket, plus applicable state income tax. The tax is calculated on the January 1 balance, not the value at the time the prohibited transaction was discovered.
Step 3: 10% Early Withdrawal Penalty if Under 59½
If you are under age 59½ when the disqualification occurs, a 10% additional tax applies to the distribution under IRC 72(t). On a $500,000 account, that is $50,000 more on top of the income tax. The standard IRA early withdrawal exceptions generally do not apply when the distribution is forced by account disqualification rather than by voluntary withdrawal.
Step 4: The 15% Excise Tax on the Transaction Amount
Separate from the disqualification penalty, IRC 4975(a) imposes a 15% excise tax on the “amount involved” in the prohibited transaction itself. This excise tax applies to the disqualified person who participated, not the account. If the transaction is not corrected within the taxable period, the rate escalates to 100% of the amount involved.
The McNulty Case (2021): A $730,000 Lesson
McNulty v. Commissioner, 157 T.C. 110 (2021), is the Tax Court ruling most commonly cited by gold IRA attorneys, custodians, and compliance advisors when explaining why home storage arrangements are noncompliant.
The facts: Donna McNulty held a self-directed IRA structured through a personal LLC (commonly called a “checkbook IRA”). She used IRA funds to purchase American Eagle gold and silver coins. The coins were shipped to her home in Rhode Island and stored in a personal safe. McNulty believed the arrangement was compliant because (1) she was the manager of her own IRA LLC, and (2) American Eagle coins are IRS-approved precious metals under IRC 408(m).
The Tax Court disagreed on both grounds. The court held that:
- Physical possession of IRA-owned coins at her home constituted a taxable distribution, regardless of the IRA LLC structure wrapped around the transaction.
- Acting as the LLC manager and taking custody of IRA assets constituted furnishing services to the IRA for personal benefit, a prohibited transaction under IRC 4975(c)(1)(C).
- The checkbook IRA LLC did not create any exception to the physical possession rule for IRA-held metals under IRC 408(m)(3).
- The IRS-approved status of American Eagle coins was irrelevant once the coins were in the account holder’s personal possession outside an approved depository.
The entire IRA balance, approximately $730,000, was treated as a taxable distribution in the year the coins first arrived at her home. McNulty owed income taxes on the full amount for that year.
The court’s opinion is publicly available at ustaxcourt.gov. It resolved a question that had been debated among practitioners for years: no structure, LLC or otherwise, makes home storage of IRA-owned gold permissible.
Home Storage Gold IRA Schemes: Still Marketed, Still Noncompliant
Despite McNulty, companies advertising “home storage gold IRAs” or “IRA checkbook control” with home storage continue to operate. The pitch is attractive: store physical gold at home, maintain direct access, eliminate custodian fees. The IRS has not reversed its position, and the Tax Court has now ruled against the structure.
Under IRC 408(a), an IRA must be administered by a qualified trustee. Under IRC 408(m)(3), IRS-approved precious metals held in an IRA must be in the physical possession of a trustee described in 408(a). The IRS has stated that “physical possession” in this context means an approved depository, not the account holder’s residence or a safe-deposit box the account holder controls.
FINRA’s investor alerts page maintains current warnings on precious metals fraud, including alerts specific to home storage promotions and checkbook IRA arrangements. The SEC investor alert on precious metals provides additional context on schemes targeting retirement savers.
Why the Checkbook IRA LLC Does Not Help
For tax purposes, a single-member LLC is a disregarded entity. The IRS looks through the LLC to its owner. If the account holder controls the LLC, and the LLC holds the gold, the IRS treats the account holder as holding the gold. The interposition of an LLC does not satisfy the qualified trustee requirement under IRC 408(a), because the account holder, not an independent trustee, controls the entity that holds the assets.
What “IRS-Approved Storage” Actually Requires
IRS-approved storage for gold IRA metals means a depository that:
- Is qualified under IRC 408(a) as a trustee (a bank, credit union, savings association, or IRS-approved non-bank trustee).
- Holds the gold under the custodian’s name, not the account holder’s.
- Provides audited, annual account statements.
- Has documented physical security and access controls with no account holder access rights.
Examples of facilities commonly used for gold IRA storage include Delaware Depository, Brinks Global Services, Texas Precious Metals Depository, and Equity Trust’s affiliated vaults. Some custodians require use of a single facility; others allow client selection from an approved list.
What Compliant Gold IRA Custodianship Looks Like
A compliant gold IRA involves three distinct parties: you (the account holder), a qualified custodian (an IRS-approved trustee), and a separate depository (the physical vault). The custodian holds legal title to the metals on the IRA’s behalf. You direct the account but never take possession of the assets.
The compliant transaction chain works as follows:
- You open a self-directed IRA with a qualified custodian (a bank, credit union, or IRS-approved non-bank trustee under IRC 408(a)).
- You fund the account via a direct rollover from a 401(k) or other qualified plan, a trustee-to-trustee transfer from an existing IRA, or a new contribution within IRS annual limits (IRS Publication 590-A).
- You direct the custodian to purchase IRS-approved precious metals meeting minimum purity standards per IRS Publication 590-B.
- The custodian places the purchase order with an IRS-approved dealer.
- The dealer ships the metals directly to the depository. The metals do not pass through your hands at any point.
- The depository holds the metals under the custodian’s account designation, not in the account holder’s name.
- You receive regular custody statements. The custodian, not you, controls the physical storage.
Breaking any link in this chain triggers the prohibited transaction analysis. The most common break is step 5 (metals diverted to the account holder’s home) and step 6 (account holder exercising direct control over the storage arrangement).
How Augusta Precious Metals Structures Compliance
Augusta uses what their public website describes as an “Education-First Process” (LEARN/TALK/DECIDE) that walks qualified investors through every compliance step before a single dollar moves. Their custodian, Equity Trust Company, holds legal title to the metals. Storage is at Delaware Depository or other approved facilities. Augusta’s staff are salaried and non-commissioned, which reduces incentive pressure to rush transactions past the compliance review that protects the account holder. (Source: Augusta’s public website, verified 2026. BBB: A+ with zero complaints.)
Augusta serves investors with $50,000 or more in eligible retirement accounts. Their current fee waiver terms and process documentation are available via their free guide.
Get Augusta’s free Gold IRA guide + company checklist
Money Magazine #1 (2022-2026) · BBB A+ Zero Complaints · Free, no obligation
Birch Gold Group, which has served 40,000+ Americans since 2011, provides written process documentation for investors navigating rollovers to reduce prohibited transaction risk. Birch works with Equity Trust, GoldStar Trust, and Brinks as custodians and depository partners. Their minimum is $10,000 (industry-reported). Request Birch’s free Info Kit.
Noble Gold Investments, based in Encino, California, uses Texas Precious Metals Depository for storage and has safeguarded assets for 16,000+ investors. Noble’s minimum is $20,000 (industry-reported). Get Noble’s free Gold and Silver guide.
Frequently Asked Questions
What exactly triggers IRA disqualification under IRC 4975?
A single prohibited transaction between your IRA and a disqualified person triggers disqualification. The IRS deems the entire IRA distributed as of January 1 of the tax year in which the transaction occurred. Multiple violations are not required. One incident, even an unintentional one, is sufficient. The IRS does not provide a first-offense exception or an ability to cure after the tax year closes without triggering the distribution treatment.
Can I buy gold from my own company and put it in my IRA?
No. If you own 50% or more of a company, that company is a disqualified person under IRC 4975(e)(2). Any purchase your IRA makes from that company constitutes a prohibited transaction, regardless of the price paid. IRC 4975 disqualifies based on the relationship between the parties, not the economic fairness of the terms. A fair market value sale from your wholly owned company to your IRA is still a prohibited transaction.
Is a rollover from a 401(k) to a gold IRA a prohibited transaction?
A properly structured rollover is not a prohibited transaction. IRS Publication 590-A governs rollovers from qualified plans to IRAs. The key requirements: funds must go directly from the plan administrator to the new IRA custodian (a direct rollover), or you complete an indirect rollover within 60 days and do not exceed the one-rollover-per-year limit. The 60-day clock starts the day you receive the funds. Missing the window means the distribution becomes taxable. Consult your tax advisor for the specifics of your rollover situation.
What gold products are IRS-approved for an IRA?
Per IRS Publication 590-B, gold held in an IRA must meet a minimum fineness of 0.995 (99.5% purity). Approved coins include the American Gold Eagle (which is an exception to the fineness rule, approved by specific statute), American Gold Buffalo, Canadian Gold Maple Leaf, Austrian Philharmonic, and other government-minted coins meeting the standard. Gold bars and rounds must be produced by a national government mint or an accredited refiner, assayer, or manufacturer meeting the 0.995 fineness. Collectible and numismatic coins generally do not qualify regardless of gold content.
What is the difference between the 15% excise tax and IRA disqualification?
They are two separate and cumulative penalties. The 15% excise tax under IRC 4975(a) applies to the “amount involved” in the specific prohibited transaction and is assessed against the disqualified person who participated. IRA disqualification under IRC 408(e)(2) is a separate consequence applied to the account itself: the entire IRA balance is treated as a taxable distribution. Both can apply to the same transaction simultaneously. The excise tax escalates to 100% of the amount involved if the transaction is not corrected within the taxable period.
Is there any exception that allows IRA gold to be held at home?
No. IRC 408(m)(3) requires IRS-approved precious metals held in an IRA to be in the physical possession of a trustee qualified under IRC 408(a). The IRS has interpreted “qualified trustee” to require an independent institutional custodian, not the account holder. The Tax Court confirmed in McNulty v. Commissioner (2021) that a checkbook IRA LLC does not create a home storage exception. Companies that market “home storage gold IRAs” are describing an arrangement the IRS has treated as noncompliant since the 1974 enactment of ERISA.
Can I visit the depository where my gold is stored?
Some depositories allow account holder visits for verification purposes, typically scheduled in advance through the custodian. The key constraint is that you cannot take physical possession of the gold, direct its movement, or exercise any control over the storage arrangement as part of that visit. Observing storage under depository supervision is generally not a prohibited transaction. Confirm the specific policy with your custodian and the depository before making arrangements, because protocols vary.
What is the “amount involved” for calculating the excise tax?
IRC 4975(f)(4) defines the “amount involved” as the greater of the money and fair market value of any property given, or the money and fair market value of any property received. For a sale from your IRA to yourself, the amount involved is the fair market value of the gold transferred. On a $100,000 gold transaction, the initial 15% excise tax is $15,000. If the transaction is not corrected in the same taxable year, the rate escalates to 100%, meaning the excise tax could equal the full value of the transaction. A tax attorney should be involved immediately upon discovering any potential prohibited transaction.
How do Required Minimum Distributions work for a gold IRA?
A gold IRA follows the same RMD rules as any traditional IRA. Under the SECURE 2.0 Act rules effective 2023, RMDs begin at age 73. The annual RMD amount is calculated using the account balance at December 31 of the prior year divided by the applicable distribution period from the IRS Uniform Lifetime Table. For a gold IRA, the custodian typically liquidates a portion of the metals to generate the cash distribution, or makes an in-kind distribution of specific coins or bars with a verified fair market value. The in-kind option has its own valuation and reporting requirements. Consult your tax advisor for your specific RMD calculation and distribution method.
What should I verify about a gold IRA custodian before opening an account?
Verify five things: (1) the custodian is a qualified trustee under IRC 408(a), listed on the IRS Approved Nonbank Trustees list if they are a non-bank entity; (2) they use an independently operated third-party depository, not in-house or account-holder-controlled storage; (3) metals are shipped directly from the dealer to the depository with no step where you handle them; (4) the custodian provides a written storage agreement with the depository; (5) the custodian has a verifiable BBB or state regulatory standing. If a custodian cannot provide documentation for any of these points, do not proceed. Ask Augusta, Birch, Noble, or any other provider to confirm their custodian’s IRC 408(a) status in writing before funding your account.
Sources and Methodology
All factual claims in this guide cite publicly available institutional sources. IRC 4975 citations trace to IRS.gov and the full statute. Company-specific facts were verified against public partner websites in 2026 and cross-referenced against the Better Business Bureau. This guide does not constitute tax or legal advice.
- IRS: Prohibited Transactions (retirement plans overview)
- IRS Publication 590-B: Distributions from Individual Retirement Arrangements (2023)
- IRS Publication 590-A: Contributions to Individual Retirement Arrangements (2023)
- IRS: List of Approved Nonbank Trustees and Custodians
- US Tax Court: McNulty v. Commissioner, 157 T.C. 110 (2021)
- FINRA Investor Alerts: Precious Metals and Home Storage IRAs
- SEC Investor Alert: Precious Metals Fraud
- Better Business Bureau: Partner Accreditation and Complaint Data
- Augusta Precious Metals official site (verified 2026)
- Birch Gold Group official site (verified 2026)
- Noble Gold Investments official site (verified 2026)
Goldiew evaluates gold IRA providers using publicly available data: BBB ratings and complaint counts, verified user review aggregates from our platform, and documented fee structures from company websites. This guide was produced by the Goldiew Research and Editorial team and reviewed against IRS Publication 590-B as of 2026.