SDIRA prohibited transactions question

6 Replies

I have been reading posts and learning from this website over the past few months and this is my first post! My mother-in-law is retired now and she has a 403B retirement plan with her former employer that is drawing peanuts for her. I have spoken with her about letting an IRA custodian switch her retirement plan into a SDIRA which I would then borrow from the SDIRA plan for my real estate flips and pay back the SDIRA the principal balance borrowed and 12% simple interest every time that I flip a house to an end buyer. My question is would this be considered prohibited transactions by the IRS since I am technically related to her by marriage? Of course, only the IRA custodian would handle the distribution and reinvestment of monies borrowed so every transaction would be "arms length" as required by the IRS. Thanks in advance for any advice given on this subject!

You are okay. Your wife is prohibited from transacting with her IRA.

@Todd Tinker

I did a brief internet search and here is what I found.

See section #2 and it does appear you can use funds of a mother in law but you should do your own due diligence.

http://sdirahandbook.com/who-is-prohibited-to-my-s...

Maybe you could check IRS website for more info.

Hope this points you in right direction.

@Brian Eastman  @Todd Tinker  My apologies I was thinking the other way around. His mother in law would be able to transact with his, but he wouldn't be able to transact with her's.

Thanks to all of you for your advice and for clarifying that for me. 

This would be considered a 'Prohibited Transaction', spouse of a linear descendant is considered to be a 'Disqualified Person'. 

Source (page 51): http://www.irs.gov/pub/irs-pdf/p590.pdf