If I decide to climb on the roof of my house and try to ride a unicycle while blindfolded, it is not illegal. Dangerous, yes, but not in violation of any laws.
If I elect to randomly jump off a bridge under the guidance of the Usually Successful Bungee Jump Company, it is my prerogative. Again, not against the law, but potentially destructive.
And if I choose to empty my IRA account and bet it all on the Superbowl in Las Vegas, hoping to win big, pocket the winnings, and roll the withdrawn dollars back into my account before the 60-day rollover window closes, I can do that, too. Treacherous, risky and dumb, but not a prohibited IRA transaction.
So, what constitutes a “prohibited transaction” within an IRA? Prohibited transaction rules are in place to discourage account owners from acting in a self-serving or “self-dealing” manner. IRA assets are to be invested in a way that benefit the account itself as opposed to the account owner personally or other “disqualified persons.” (Essentially, “disqualified persons” include the IRA account owner, the owner’s spouse, ancestors and lineal descendants, investment managers and advisors, those providing services to the IRA, and entities in which the IRA holder owns a controlling equity or management interest.)