Partnerships and IRA's

2 Replies

I saw this question in another post, but no one took the time to answer it, so I thought I'd ask it for myself as I find myself in the same boat. Without any further adieu, here's the question:

"I have question regarding IRA and partnership. Here is the scenario,

Person A and Person B are partner

Person A has a self-directed IRA which will contribute the 25% down payment

Person B has good credit and will loan the other 75%

Can Person A and Person B buy the investment property into an LLC and get the company under their name as 50/50 business owner? The LLC for asset and law-suit protection."

Any help would be greatly appreciated. 

@Account Closed

So long as person B is not a disqualified party to person B, then they can joint venture / partner together.

Forming a LLC where person A's IRA and person B are the members is fine.

The equity arrangement does not need to directly align with capital provided, so long as both members agree.

Because debt financing is being used, there are two considerations.

1 - The debt must be non-recourse with respect to person A and their IRA. Person B may pledge a person guarantee if they like.

2 - Because person A's IRA is receiving income that is derived from the use of debt financing, the IRA will have exposure to UDFI taxation. Do not panic. The impact of the taxation should be minimal relative to the leveraged increase in return for the IRA dollars deployed.

You will definitely, absolutely want to seek the counsel of a CPA and/or attorney familiar with IRA rules and UDFI tax implications before proceeding.

This type of deal is, while not common, frequently entered into, and can be beneficial for both parties.

Good luck.

Brian,

Can you explain your first paragraph a little more?

Would be greatly appreciated. 

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