BiggerPockets

Does anyone currently use this medium for their Ira? I've been getting some conflicting information about the "checkbook" approach.

Thanks

Unless you're in California where every LLC costs $800 annually. I set up a regular SDIRA and will pay $10 per check requested. So as long as I write less than 80 checks a year, I should be ahead of the game (I currently write less than 25 checks/year with my current non-IRA LLC).

I am finding the same dental work that Jon is lately with ETC.

While checkbook control sounds and I am sure a good option, I personally prefer that layer of 3rd party protection in my dealings with SDIRA's. No matter how experienced you are in IRA's, having a 3rd party help look over your shoulder will help accidents from occurring and having the IRA become disqualified.

Thanks guys. The issue of a cumbersome or untimely process of payments was one of my concerns and why I was considering the checkbook IRA. I sent Entrust a note asking about the checkbook approach (they don't offer checkbook) and received a response from them heavily against the checkbook approach...yet I've also received many responses from those firms advocating their use.

Thanks, Will. At this point it would be used for property flipping...when I think of timely bidding, paying contractors and purchasing materials I'm just not sure having the third party intervention is a feasible approach with this type of venue. I'm sensitive to the issue of prohibited transactions and disqualified individuals...as with all types of programs.

Chuck,

For rehab flips inside an IRA, I would choose nothing other than the checkbook control without question.

Keep in mind as Jon stated, UBIT will apply and that can be very costly. You would have to weigh the return difference between a passive investment from the IRA such as making loans vs the active flip which will get taxed at high rates. If you do well and make a 60% annual retrun from flipping inside the iRA, know that a large chunk of that will be taken away via UBIT cutting your annual returns down, then upon withdrawal at retirement, you get taxed again. So, the end return after UBIT should still be at least 30% or better or it is not worth the active effort it takes. You would be better served flipping outside an IRA and usingt the IRA funds to fund others flip deals, stay passive, stay inside all IRS rules, and avoid double taxation.

jON - The IRS section 513 is the area that governs UBIT so you may want to reference that.

Here is alink I found on that section. If you can make sense of the lehgal mumbo jumbo run-on sentences in here, good luck,but it does verify what I stated above.
http://us-code.vlex.com/vid/sec-unrelated-trade-business-19209232

Pub 598 is what I read some years back on this topic. It goes through a number of examples of what is and what isn't subject to UBIT. There are a number of specific sources of income that are exemptions to UBIT. Two are passive investments; like loans, stocks or bonds; and rental income. But then for rental income there is a exemption to the exemption if the rental has debt financing.

In the same why fix and flipping is viewed as a "dealer" activity, its an active business rather than a passive investment. The example they use repeatedly is a non-profit university running a bookstore. Your IRA is just like the non-profit university. Running the bookstore is an unrelated business. So the bookstore income is subject to UBIT. Fix and flipping is an active business and so subject to UBIT. That's why, IMHO, making hard money loans to flippers is a better activity for an IRA. That's a passive business and not subject to UBIT.

My CPA agreed with Jeff regarding the repo situation. She discussed it with the IRS and they agreed, too. It didn't really matter to me, though, since the sale was at a loss.

In the same why fix and flipping is viewed as a "dealer" activity, its an active business rather than a passive investment. The example they use repeatedly is a non-profit university running a bookstore. Your IRA is just like the non-profit university. Running the bookstore is an unrelated business.

I understand. The university is tax exempt because it is an educational organization. The bookstore is an unrelated business.

The business of running a bookstore is unrelated to education because you can have a perfectly good school without a bookstore. That is clear.

What is not clear to me is, why is a for profit business unrelated to growing your retirement savings? The purpose of your IRA, it's mission, is to grow your retirement funds. How is a for profit business unrelated to that?

Everything I have read from the IRS about UBIT specifically talks about tax exempt organizations, typically section 501. That is an entirely different animal than a retirement account. So I don't see why it applies.

I am sure the answer is in letter rulings and court precedents. I would love to read the actual source documents that link UBIT to IRAs