Can someone clarify the fourth example “prohibited transaction” in IRS Publication 590-B, “buying property for personal use (present or future) with IRA funds”?
If someone (59-1/2 or older) withdraws funds from a traditional IRA and uses it to buy real estate upon which they intend to use as a primary residence, is that what the prohibited transaction is referring to?
I’ve heard one interpretation that the IRS means you cannot put property “into your IRA”, but that seems to be the 2nd of 4 examples in the publication, i.e. “selling property to [the IRA]”.
No. After the funds are withdrawn from the IRA (with appropriate taxes to be paid), the funds are no longer subject to the prohibited transactions clause, because they are no longer in the IRA.
Examples of when the prohibited transactions issue occurs are when the IRA itself owns something (like property) that the owner of the IRA is using for their personal use or the owner of the IRA is paying for expenses for something that the IRA owns from non-IRA funds.
Yes, that’s the 2nd example that you cited. However, it also means that you can only make original contributions into an IRA using cash. You cannot, for example, take stock that you own in a taxable account and contribute it to an IRA. You would have to sell the stock (recognizing any gains or losses), make the IRA contribution using cash generated from the sale, and then buy the stock in your IRA using the money you contributed. (Note: this does not prohibit in-kind rollovers or conversions of stock - just original contributions.)