Real Estate Agent & Investor · West Chester, PA · Member since 2013 · 90 posts · 21 votes
I am looking to use my SDIRA funds for a wholesaling. Seeking a lawyer to review a specific idea/possible transaction. Maybe set up an entity if needed.
Wholesaling is simply not a suitable strategy for a self-directed IRA or Solo 401(k) plan. There are two issues:
1) it is considered a trade or business activity, not a passive income producing investment. When a tax-exempt entity engages in a trade or business on a regular or repeated basis, it becomes subject to taxation on Unrelated Business Taxable Income (UBTI). Rates can climb as high as 37%.
2) Wholesale requires hustle, and that creates risk of self-dealing. You can administer your IRA in a limited sense, but you cannot perform services or provide benefit to the IRA via your own efforts. If the IRS deems you are adding value to an IRA via the provisions of goods or services, the entire IRA can be disqualified and deemed taxable.
Better strategies for an IRA include; being a private lender (perhaps including transaction funding to non-related wholesalers) long term rentals, participating in syndications, and other transaction types that generate passive income and can be done at arm's length.
Mat is my Attorney for matters related to self-directed retirement and created my Solo 401K. He and his partner Mark Kohler also recently established a self-directed custodial company called Directed IRA
One potential issue I see comes with running a business out of a retirement account. Mat would probably tell you a few transactions a year are fine, but when it begins to look like a business it's an issue.
Wholesaling is simply not a suitable strategy for a self-directed IRA or Solo 401(k) plan. There are two issues:
1) it is considered a trade or business activity, not a passive income producing investment. When a tax-exempt entity engages in a trade or business on a regular or repeated basis, it becomes subject to taxation on Unrelated Business Taxable Income (UBTI). Rates can climb as high as 37%.
2) Wholesale requires hustle, and that creates risk of self-dealing. You can administer your IRA in a limited sense, but you cannot perform services or provide benefit to the IRA via your own efforts. If the IRS deems you are adding value to an IRA via the provisions of goods or services, the entire IRA can be disqualified and deemed taxable.
Better strategies for an IRA include; being a private lender (perhaps including transaction funding to non-related wholesalers) long term rentals, participating in syndications, and other transaction types that generate passive income and can be done at arm's length.
Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
6y
Agreed with @Brian Eastman, there are a lot of great passive investment vehicles that you can use for your SDIRA. Private lending, syndications, and notes are probably the most common.