"Disqualified person" is the IRS's term for the people and entities your IRA cannot transact with — knowing exactly who is on that list is the single most important piece of knowledge for running a Self-Directed IRA without triggering a prohibited transaction.

A disqualified person is any individual or entity that is prohibited from engaging in transactions with an IRA because of their relationship to the account holder. Disqualified persons include the IRA holder themselves, their spouse, ancestors (parents, grandparents), lineal descendants (children, grandchildren) and their spouses, and any entity in which a disqualified person owns 50% or more. Financial advisors and their firms may also qualify as disqualified persons in certain circumstances.

The full definition lives in Internal Revenue Code (IRC) Section 4975(e)(2). Because disqualified-person status is what makes a transaction "prohibited" under the related "Prohibited transactions — what they are and why they matter" rules, the list below is worth reading carefully before you direct your first investment.

Under IRC §4975(e)(2), the following are disqualified persons with respect to your IRA:

Your Self-Directed IRA (SDIRA) at Retired.com must transact with people and entities outside this list.

A handful of relatives sit outside the disqualified-persons list. The IRS does not include:

This matters because an IRA can, in principle, transact with non-disqualified relatives — for example, lending money (structured as an arm's-length investment) to a sibling's unrelated business can be permissible, where lending to a child's business would not be.

The entity-ownership rules are where prohibited transactions most commonly go wrong. Two practical points:

Before directing any investment that involves an entity in which you, your family, or your financial advisor holds a meaningful interest, walk through the ownership math carefully.

The fiduciary and service-provider categories deserve a separate note. A fiduciary includes anyone who exercises discretionary authority over your IRA's assets or its management. A service provider is anyone engaged to provide services to the IRA — an accountant doing IRA-specific tax work, for example, or an attorney drafting investment documents for the IRA.

Both categories are disqualified persons, which means those advisors cannot also transact with the IRA in a second capacity (for example, selling a property to the IRA they are also advising on). This is why professionals working on SDIRA investments structure their engagements carefully.

Is my sibling a disqualified person?
No. Siblings are not on the IRC §4975(e)(2) list. Your IRA can, in principle, transact with a sibling at arm's length, though any underlying structure still needs to avoid benefiting you or another disqualified person personally.

What about my cousin, aunt, or uncle?
Also not disqualified persons. Only the straight up-and-down family line — ancestors, lineal descendants, their spouses, and your own spouse — is covered.

Does my financial advisor count as a disqualified person?
A paid advisor to your IRA can be a disqualified person in their fiduciary or service-provider capacity, and their firm can be pulled in under the 50% test. That is why advisors who are helping with IRA investments typically will not also take the other side of an IRA transaction.

If an entity starts out non-disqualified but later crosses the 50% threshold, what happens?
The moment the aggregated disqualified-person ownership reaches 50%, the entity becomes a disqualified person going forward. Any ongoing transactions between your IRA and that entity need to be reviewed, because a prohibited transaction can occur at any point the relationship is in place. We recommend consulting a tax advisor or attorney for guidance specific to your situation.

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