Check Book IRA to Syndication

13 Replies

Hi BP, Just need your input about this: i am planning to rollover my 401k (from previous employer) to a Check Book IRA, LLC then after, i am looking at joining Syndication. Is this a good move? If not, what can you recommend? Thanks.

If you invest in a syndication that uses debt (most mfh deals) you will be subject to UBIT tax on leveraged portion.

@Lyndon Timbang

Apologies, but this really is an unanswerable question.  There are so many factors that would help you to determine if this is the right direction to move, based on your situation, goals, type and amount of retirement funds available, other investment goals, etc.

From a purely IRA perspective, I would look at the following:

What is the nature of the syndicate? Is it passive income generation such as rental property or an active trade or business such as new real estate development or the like? Active businesses generate UBIT tax exposure for an IRA. Will there be debt-financing used? If so, there may be exposure to UDFI taxation for an IRA. And most importantly, what is the quality of the team and the project - basically is it a good investment for any kind of money (IRA or otherwise).

Also, if your non-traditional asset investing goals will only be a single static investment such as a private placement syndicated deal, do you really need checkbook control? We specialize in such plans, but would generally refer someone only looking at one static deal to just go with a custodian. The benefits of a Checkbook IRA LLC come into play when the investments will be static but in multiples, or individually transaction intensive.

Hi Lyndon,

I work with a lot of investors doing exactly this. A couple thoughts:

-To roll over your 401k, you will need what's called an IRA custodian. UDirect is a popular option
- Many companies do not allow a 401k rollover if you are still employed with them, so check with your HR to make sure it's allowed in your company plan
- When using your 401k nest egg, it's imperative that you are with a highly experienced team or syndicate with many demonstrated projects.

Feel free to reach out with any more questions about structures, legal, returns, etc..

Best,
Salem

@ Lane, Brian and Salem- thanks for the responses. It seems that i need to sit down with an advisor to educate me more about this matter.
@Brian Eastman - the nature of Syndication is passive income by buying rental properties.

@Salem VanderStel- my 401k is from my previous employer so no more contributions is made.

Thanks

@Lyndon Timbang

Investing in a private fund that holds rentals is a good way to pool investors funds including IRAs and solo 401k plan funds. This is another way of diversifying your retirement funds. 

When investing in a private fund, the concern of a ponzi scheme also exists so make sure to perform your full due diligence on the investment company. Fraudsters target retirement funds because IRAs and solo 401k plans are long-term saving vehicles, which means investors often don’t look to make distributions until they retire because doing so generally results in the payment of taxes and possible penalties.

Originally posted by @Lyndon Timbang :
Hi BP, Just need your input about this: i am planning to rollover my 401k (from previous employer) to a Check Book IRA, LLC then after, i am looking at joining Syndication. Is this a good move? If not, what can you recommend? Thanks.

One of my investors just did this and is really please with the checkbook IRA. I think she would be happy to discuss the process and share the company she used. PM me if you would like me to connect you with her.

I'm looking at the checkbook option now too.  I currently have two SDIRAs and dealing with the custodian's process is miserable.  As Brian mentioned, for a single passive investment though, you would not need checkbook control.  I don't have many transactions but some of them are time sensitive (first to fund)...plus I just can't stand the custodian...did I mention that.

@Lane Kawaoka i'm always curious on how many people actually comply.  I'm lending; so, it doesn't impact me.

@ George - thanks for that warning. I really need to look and do more research about it.

Todd Dexheimer - thanks. If you can connect me to that person, i would appreciate it.

@ Mike - thanks also for the comment and yes i heard of bad custodians with high fees. I will educate myself more about this before i make a decision.

@Lyndon Timbang , @David Thompson and I were just talking about this exact thing mere hours ago. The only thing I can say for certain without knowing your exact situation, is that it's possible.

As @Brian Eastman said, it's nearly impossible to answer your question without knowing the who/what/where/when/why and how.

On top of what everyone else has said above (all great suggestions), I would say that the best piece(s) of advice would be to talk to your CPA/tax strategist, find a custodian that fits your goals and needs, and do your due diligence in vetting prospective syndicators - they'll likely be able to give you an idea of how SDIRA investments in their properties have gone thus far.

@Lyndon Timbang @Mike Dymski @Michael Bishop

I checked with a couple CPAs...

Be mindful if you are using SDIRA money where there is UBIT tax that you are using that for non-leveraged investments first. Then use up the cash (general money) for the rest.

When I used to work for government we were able to use utility revenue only for utility project therefore we tried to use that money first in projects and then use the general fund money for the rest. Sort of the same thing happening here.

UBIT - is Unrelated business tax which not a lot of people talk about. A lot of syndications will take SD IRA / retirement money but it is your responsibility to pay your taxes accordingly. The government is doing you a favor by not taxing your SDIRA money (I still don't like how you can't leverage the money and can't touch it till you at 60 something years old) but the will hammer you with UBIT tax on the leveraged portion. Not a deal breaker but something to be aware of. I'm pretty sure your shopping-mall tax account does not really know about UBIT

Question: I have seen in your Hui Deal Pipeline emails that image of “the sample 500k portfolio” template, are suggesting or are you highlighting what you've actually done and the cash flow you are actually getting.

Answer: Well sort of I would say that that is the vision based on my knowledge and network. Personally I would say I have the bottom rung build and building the second row. I don’t have any Assisted Living Facilities (which are obvious winners due to demographic plus a lot of times its done without leverage so you folks with SDIRAs who don’t want to pay UBIT tax… this is for you!)

Although I still look for cashflow first, I am now coming around to this concept that Uber Sophisticated investors go into 2-4 year deals without cashflow and get annual returns of 20-40% a year. This concept is still a little foreign to me.

In my disclaimer in my podcast I always say "I reserve the right to change my mind." My vision has been constantly evolving. From these free coaching calls I give I have talked to hundreds of people and I have seen a pattern of people who are closed minded (ego) will FAIL and lol they don't even know it. That's why I started asking the question in my interviews, "what have you recently changed you mind in." Personally I have changed by opinion about using HELOC as down payments, back tracking from using life insurance, back tracking from QRPs (SRIDAs), 1031 exchanges, and wanting to take over the world with 50 turnkey rentals. We all have moments in the past that we are ashamed of.

Originally posted by @Lane Kawaoka :

@Lyndon Timbang @Mike Dymski @Michael Bishop

I checked with a couple CPAs...

Be mindful if you are using SDIRA money where there is UBIT tax that you are using that for non-leveraged investments first. Then use up the cash (general money) for the rest.

When I used to work for government we were able to use utility revenue only for utility project therefore we tried to use that money first in projects and then use the general fund money for the rest. Sort of the same thing happening here.

UBIT - is Unrelated business tax which not a lot of people talk about. A lot of syndications will take SD IRA / retirement money but it is your responsibility to pay your taxes accordingly. The government is doing you a favor by not taxing your SDIRA money (I still don't like how you can't leverage the money and can't touch it till you at 60 something years old) but the will hammer you with UBIT tax on the leveraged portion. Not a deal breaker but something to be aware of. I'm pretty sure your shopping-mall tax account does not really know about UBIT

Question: I have seen in your Hui Deal Pipeline emails that image of “the sample 500k portfolio” template, are suggesting or are you highlighting what you've actually done and the cash flow you are actually getting.

Answer: Well sort of I would say that that is the vision based on my knowledge and network. Personally I would say I have the bottom rung build and building the second row. I don’t have any Assisted Living Facilities (which are obvious winners due to demographic plus a lot of times its done without leverage so you folks with SDIRAs who don’t want to pay UBIT tax… this is for you!)

Although I still look for cashflow first, I am now coming around to this concept that Uber Sophisticated investors go into 2-4 year deals without cashflow and get annual returns of 20-40% a year. This concept is still a little foreign to me.

In my disclaimer in my podcast I always say "I reserve the right to change my mind." My vision has been constantly evolving. From these free coaching calls I give I have talked to hundreds of people and I have seen a pattern of people who are closed minded (ego) will FAIL and lol they don't even know it. That's why I started asking the question in my interviews, "what have you recently changed you mind in." Personally I have changed by opinion about using HELOC as down payments, back tracking from using life insurance, back tracking from QRPs (SRIDAs), 1031 exchanges, and wanting to take over the world with 50 turnkey rentals. We all have moments in the past that we are ashamed of.

That was a high-quality answer.  Really insightful.  Love the question from your podcast as well.

You certainly don't need the expense of a checkbook SDIRA if all you are doing is investing in a single syndication deal. You can save a lot of money by simply using one of the big SD-IRA custodians. They can handle the account transfer/rollover for you.

The checkbook IRA is only necessary if you need to write a check on the spot to clinch a deal. That is not the case in a private placement deal.

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