Partnering with a Self-Directed IRA

[Noah Madsen]

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!

[Dmitriy Fomichenko]

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:

https://www.irs.gov/retirement-plans/plan-particip...