As of July 22, 2025, important updates and clarifications have been released regarding prohibited transactions in retirement plans, including IRAs and qualified plans. These changes and ongoing enforcement efforts are especially relevant for immigrants and foreign nationals living in the United States 🇺🇸 who participate in U.S. retirement plans, either as employees, business owners, or beneficiaries. Understanding these rules is essential to avoid costly mistakes, penalties, and the loss of valuable retirement savings. Below, you’ll find a clear summary of what has changed, who is affected, effective dates, required actions, and the implications for pending and future applications.
Summary of What Changed
The Internal Revenue Service (IRS) and Department of Labor (DOL) have not made major legislative changes to the core rules on prohibited transactions for 2025. However, they have issued new guidance and increased enforcement, especially for self-directed IRAs and alternative investments. The IRS clarified that even indirect transactions—such as personal guarantees on loans to retirement plans—are now clearly considered prohibited transactions. There is also a renewed focus on educating plan fiduciaries and sponsors to prevent accidental violations.
Who Is Affected
These updates affect a wide range of people, including:
- Immigrants and foreign nationals who have U.S. retirement accounts (IRAs, 401(k)s, or other qualified plans)
- Plan fiduciaries (anyone who manages or controls plan assets, including business owners and trustees)
- Disqualified persons (family members, certain business entities, and others with close ties to the plan)
- Employers who sponsor retirement plans for their employees
- Financial advisors and tax professionals who help clients with retirement planning
If you are an immigrant working in the United States 🇺🇸 and have a retirement plan, or if you are a business owner sponsoring a plan for employees, these rules directly impact you.
Effective Dates
The most recent IRS guidance and DOL enforcement efforts are effective immediately as of May 2025. All retirement plan transactions from January 1, 2025, onward are subject to these clarified rules. If you have pending transactions or are considering new investments, you must follow these updated guidelines to avoid penalties.
Required Actions
To stay compliant and protect your retirement savings, you should:
- Review all plan transactions since January 1, 2025, for possible prohibited transactions.
- Identify all disqualified persons connected to your plan, including yourself, family members, and related business entities.
- Avoid any direct or indirect transactions between your plan and disqualified persons, even if the transaction seems fair or benefits the plan.
- Consult with a qualified tax or ERISA professional before making complex investments, especially in real estate, private businesses, or loans.
- Correct any prohibited transactions immediately to reduce penalties and restore plan compliance.
- Stay informed by checking official IRS and DOL resources for updates and guidance.
What Is a Prohibited Transaction?
A prohibited transaction is any deal or arrangement between a retirement plan and a disqualified person that the law forbids. The rules are designed to prevent people from using retirement savings for personal gain or to benefit close family members or related businesses.
Disqualified persons include:
- The plan owner or fiduciary (the person who manages the plan)
- Family members (spouse, parents, children, grandchildren, and their spouses)
- Entities (companies, trusts, or partnerships) where disqualified persons own 50% or more
- Officers, directors, or 10%+ owners of such entities
Common prohibited transactions are:
- Transferring plan assets to a disqualified person
- Using plan assets for your own benefit as a fiduciary
- Receiving payment or benefits from someone dealing with the plan
- Selling, exchanging, or leasing property between the plan and a disqualified person
- Lending money or extending credit between the plan and a disqualified person
- Providing goods, services, or facilities between the plan and a disqualified person
It’s important to note that these rules apply even if the transaction is at fair market value or seems to help the plan. The law is strict: if a disqualified person is involved, the transaction is generally prohibited.
Recent Developments and Enforcement Trends
- The IRS and DOL have increased their focus on self-directed IRAs and alternative investments, such as real estate, private companies, and loans. These types of investments often lead to prohibited transactions because it’s easy to accidentally involve a disqualified person.
- In May 2025, the IRS clarified that personal guarantees on loans to IRAs or qualified plans are prohibited, even if the loan is meant to help the plan.
- The DOL continues to grant class exemptions for certain transactions, but these are only available under strict conditions.
- Both agencies are providing more education and outreach to help fiduciaries and plan sponsors avoid mistakes.
Penalties for Prohibited Transactions
The penalties for prohibited transactions are severe and can have life-changing consequences, especially for immigrants who may be relying on these savings for their future in the United States 🇺🇸.
- For IRAs: If a prohibited transaction occurs, the entire IRA loses its tax-advantaged status as of January 1 of that year. The full account balance is treated as a distribution, which means you must pay income tax on the amount. If you are under age 59½, you may also face a 10% early withdrawal penalty.
- For qualified plans (like 401(k)s): The fiduciary responsible for the prohibited transaction may be personally liable for any losses and must return any profits. There is a 15% excise tax on the amount involved, and if the transaction is not corrected, the tax jumps to 100%.
- For other disqualified persons: If someone other than the plan owner causes the prohibited transaction, they may also face the same excise taxes and penalties.
- Plan disqualification: In some cases, the entire plan can be disqualified, leading to loss of tax benefits and creditor protection.
Examples of Prohibited Transactions
To help you understand what to avoid, here are some real-world examples:
- An IRA owner sells a rental property they own to their IRA. Even if the price is fair, this is a prohibited transaction because the owner is a disqualified person.
- A business owner borrows money from their company’s 401(k) plan to pay personal expenses. This is not allowed unless the loan follows strict plan rules and is available to all participants.
- A plan owner uses IRA funds to buy a vacation home and lets their child stay there rent-free. This is a prohibited transaction because a family member is benefiting from plan assets.
- A fiduciary receives a payment from a company that does business with the plan. This is self-dealing and is strictly forbidden.
- A plan owner personally repairs a property owned by their IRA, adding value to the asset. Even though it may seem helpful, this is not allowed because the owner is providing a service to the plan.
Exemptions and Special Cases
Not every transaction involving a disqualified person is prohibited. There are some important exceptions:
- Normal plan benefits: If a disqualified person receives a benefit as a plan participant or beneficiary, and it’s paid under the same terms as for everyone else, this is not a prohibited transaction.
- Loans to participants: Qualified plans (like 401(k)s) can make loans to participants if the plan allows it and the same rules apply to everyone.
- DOL exemptions: The Department of Labor can grant exemptions for certain transactions if they protect plan assets and meet strict requirements.
If you think a transaction might be prohibited but is necessary, you can apply for an administrative exemption from the DOL. However, you must wait for approval before proceeding.
Immediate Steps for Pending Applications and Transactions
If you have a pending application to move assets, invest in alternative assets, or take a loan from your retirement plan, you should:
- Pause and review the transaction with a qualified professional to ensure it does not involve a disqualified person or violate the prohibited transaction rules.
- Check if the transaction qualifies for an exemption or if you need to apply for one.
- If a prohibited transaction has already occurred, act quickly to correct it. This may involve undoing the transaction, restoring plan assets, and paying any required taxes or penalties.
- Document all steps taken to show good faith compliance in case of an IRS or DOL audit.
Implications for Immigrants and International Families
Immigrants and foreign nationals often face extra challenges with U.S. retirement plans, especially if family members or business interests are located outside the United States 🇺🇸. It’s important to remember:
- The definition of a disqualified person includes family members, even if they live abroad.
- Transactions involving foreign companies or trusts may still be prohibited if a disqualified person has ownership or control.
- If you plan to move assets internationally or involve family overseas, consult a U.S. tax advisor to avoid accidental violations.
Role of the Fiduciary
A fiduciary is anyone who manages or controls a retirement plan or its assets. This includes plan owners, trustees, and sometimes business owners. Fiduciaries have a legal duty to act in the best interest of plan participants and must avoid conflicts of interest. If a fiduciary engages in a prohibited transaction, they can be held personally responsible for losses and penalties.
How to Avoid Prohibited Transactions: Step-by-Step
- List all disqualified persons connected to your plan.
- Review every transaction for possible conflicts or personal benefit.
- Do not use plan assets for personal or family benefit.
- Hire independent professionals for services related to plan assets, such as property management or repairs.
- Consult with experts before making complex investments.
- Apply for exemptions if needed, and wait for approval.
- Fix any mistakes quickly to reduce penalties.
Official Resources and Where to Get Help
For the most accurate and up-to-date information, visit the IRS Retirement Plans FAQs and the Department of Labor’s Employee Benefits Security Administration (EBSA) website. These sites offer detailed guidance, forms, and contact information for further help.
Conclusion and Practical Takeaways
The rules on prohibited transactions are strict and can have serious consequences for anyone with a U.S. retirement plan, especially immigrants and foreign nationals who may not be familiar with all the details. As reported by VisaVerge.com, the IRS and DOL are paying closer attention to self-directed IRAs and alternative investments, making it more important than ever to follow the rules carefully.
Key steps to remember:
- Always check if a transaction involves a disqualified person.
- Avoid using plan assets for personal or family benefit.
- Consult with professionals before making complex moves.
- Act quickly to fix any mistakes and reduce penalties.
By staying informed and careful, you can protect your retirement savings and avoid costly penalties. If you have questions or concerns, reach out to a qualified ERISA attorney or tax advisor for personalized advice.
Learn Today
Prohibited Transaction → A forbidden deal between a retirement plan and a disqualified person under IRS/DOL rules to prevent misuse of assets.
Disqualified Person → Anyone linked closely to a plan, including owners, family, or entities owning 50%+ of related companies.
Fiduciary → An individual managing or controlling plan assets, obligated to act in participants’ best interests and avoid conflicts.
Self-Directed IRA → An individual retirement account allowing alternative investments like real estate, with higher prohibited transaction risks.
Class Exemption → A regulatory permission by DOL that allows certain normally prohibited transactions under strict conditions.
This Article in a Nutshell
Updated 2025 rules emphasize strict enforcement of prohibited transactions in U.S. retirement plans, especially self-directed IRAs, affecting immigrants and fiduciaries. Avoiding disqualified person conflicts protects savings from severe penalties, making professional consultation crucial to safeguard assets in complex retirement investments.
— By VisaVerge.com
