SD IRA transaction / product return question

[David Bolous]

Hi, hoping someone may have the answer to this question. I have checkbook control of my 401k using an LLC. I understand from my custodian that if I need to make a purchase of any materials for a property owned by that LLC, I may use my personal credit card to make the purchase and then make the payment on the credit card using my LLC's checking account (since LLC can't have a credit card).

I recently made a purchase of some flooring for a property that I was about to close on with my LLC, using my personal credit card and then paid off that charge using my LLC checking account.

Subsequent to that, I ended up not closing on that property and need to get a refund on the flooring I purchased. 

What's the proper way to do this transaction as I already made the payment from the LLC checking account to my personal credit card.

I can have the refund go back to the personal credit card, but then what?

Since I would have a credit on my personal credit card, can I transfer the same amount from my personal checking account to the LLC checking account as if the purchase was never made. Or is that a prohibited transaction?

Seems like a a simple issue, but not sure what’s the proper, IRS compliant way of handling this transaction and ultimately getting the $ amount returned back to the LLC checking account since the product needs to be returned to the store.

Thank you very much!

[Dmitriy Fomichenko]

David,

You are considered to be a "disqualified person" to your IRA. IRS prohibits any transactions between the plan and disqualified person. Too bad your custodian misled you into "prohibited transaction" but you should have study and understand the rules before setting up self directed account, that is your responsibility.

Per IRS: "Generally, if an IRA owner or his or her beneficiaries engage in a prohibited transaction in connection with an IRA account at any time during the year, the account stops being an IRA as of the first day of that year. The effect of this is the account is treated as distributing all its assets to the IRA owner at their fair market values on the first day of the year. If the total of those values is more than the basis in the IRA, the IRA owner will have a taxable gain that is includible in his or her income."

See for reference:

https://www.irs.gov/retirement...