Partnering with a Self-Directed IRA

4 Replies

So my father has just moved his entire retirement fund into a Self-Directed IRA and wants to get into rentals! He's more or less told me he wants me to do it for him, even if I have to learn and maybe even lose with a little bit! I've been reading and listening to everything I can get my hands on and I'm interested how that relationship would work, I know he won't be able to pull "benefit" from his investments without penalty, but certainly if we partner I will be able to? I'm also assuming since it will be listed in his LLC I won't reap any of the tax benefits? I'd love to hear if anyone has proffesional advice or has actually been apart of something like this. Thanks!

Hello Noah, welcome to BiggerPockets and congrats on your first forum post!

Both you and your father are considered to be disqualified persons to your father's self-directed IRA. IRS rules prohibited any direct or indirect benefit for such person from the IRA, and you are not allowed to provide any service, goods or facilities to the IRA. While in some instances it might be possible to get into an investment together with a disqualified person you must be very careful. In my experience dealing with thousands of clients and reviewing many potential transactions involving disqualified person the end result was a prohibited transaction. You also must remember that while in the beginning transaction might be structured in compliance with the rules there is always likelihood of it leading to prohibited transaction in the future because of disqualified person's involvement. If you decide to pursue this route be sure to consult with a knowledgeable attorney or another expect who is well versed with the rules, don't rely on the opinions expressed in the public forum. But my advice to you (actually to your dad in this case) is to stay away from any transaction involving disqualified person, there are so many "clean" ways to make money, why risk it?

You can learn more about prohibited transaction rules here:

@Noah Madsen

While you can manage the IRA LLC owned properties, you cannot receive compensation for doing so. You will definitely want to work with a competent CPA/attorney to help navigate these waters.

@Dmitriy Fomichenko ,Thanks so much! I went back to my dad with this he forward my communication to the company trying to sell him on the self-directed IRA. He told them going in he was specifically interested in investing in me (this is still a little hard for me to swallow as 30-Year old engineer with a family) and they assured him it was no problem. After he forwarded them the information they came back and corrected themselves but made sure to to discredit bigger pockets as more interested in "selling services" than offering assistance or sound advice! Crazy, he's know talking about just partnering with cash so we'll look into what that looks like. Thanks again for your response. I hope all my BP interactions are this positive.

You can absolutely "co-invest" with a disqualified party.  Make sure that your distributions of income match your contributions.  Meaning, if you are 60/40 on capital contributions, you must take profits 60/40, not 50/50.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here