Mark Kohler breaks down IRA rules on family investments: you can't use a self-directed IRA to invest in a parent's, child's, or child's spouse's business because the IRS assumes the deal won't be at fair market value. Siblings, friends, and unrelated people are fine.
Let's say you have an IRA and you want to invest your IRA in this person's coffee store stamp business. Well, could you do that with your brother or sister? Yes. Certainly. With a friend? Certainly. With someone you don't even know. But could you invest in that coffee stand with your mom or dad? No. A child? No. Spouse of a child? No. Anything lineal in that family pecking order is going to be a problem. And here's why, everybody the IRS just doesn't trust you that you're going to give your IRA a fair deal. You're going to screw over the ira, which means screwing over the tax code and the government. So not allowed. But if it's an arm's length person, then you can pull off the investment.
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