What Is a Prohibited Transaction in a Self-Directed IRA?

In its most general sense, a prohibited transaction is one where there is some sort of «self-dealing» taking place, either directly or indirectly. In certain cases, the self-dealing may not even involve the IRA owner. The chances of inadvertently engaging in a prohibited transaction are increased with a self-directed IRA that allows you to purchase alternative assets, such as real estate or privately held limited partnerships (LPs) or LLCs.