Using SD IRA to partially fund an investment?

Question

Hello BP

I thought I would tap the wisdom of BP to get my question answered.

If I want to invest in a syndication deal but don't have the total amount needed in my IRA can I supplement it with funds from savings?

Thank you ahead of time.

Loren Whitney · Answer

Hey Jd,

You can partner with your IRA funds but the interests of your investments must always remain as an undivided interest. For example, if you buy 1 share of stock in a syndication and it's valued at $100,000. Your IRA could purchase .60 shares and you personally .40 shares. That's assuming the entity will allow such a breakdown to occur.

Furthermore, you need to look at who is involved in the entity. Are you or any other family members personally involved with the entity as investors, employees, or managers?

The IRS publishes a document about prohibited transactions titled section 4975. This document contains a specific sub-section titled 'Disqualfied Persons'. It lists specific individuals but also expands on entity specific disqualifications. A few examples include: 50% or more ownership, holding roles of an officer or director, highly compensated employees, and profits interests. These are examples of possible disqualifications as it relates to the involvement of disqualified persons.

I look forward to helping you out!

Jon Holdman · Answer

Not easily.  Theoretically its possible to create an entity, put in some IRA money and some personal money creating a partnership between you and your IRA.  Then that entity invests in this deal.  Speak to your custodian and see if they will allow this and can refer you to an attorney that can help set it up.  But its easy to run afoul of the prohibited transaction rules.

Further, I'd be leery of investing too much of your nest egg in any one deal.  IMHO, never put more than 10% of your money into any one deal.  Further, if you don't have the knowledge and information that would allow you to step in and actually run the syndication, you probably don't want to invest in this deal.  Been there.  Done that.   Lost money.

JD H. · Answer

Thank you Jon, Dmitriy and Loren so much for the the quick response. ( I will figure out the @).

Jon great point about not putting more then 10 % into any one deal. This would have been much more then 10%!

This is why BP is so great, I asked one question and got some great advise as well.

Thanks again.

Dmitriy Fomichenko · Answer

@Jd H.

I agree with Jon that while it is possible, there are potential issues that may come up so be sure to have an expert guide you through this if you decide to do it.

Using SD IRA to partially fund an investment?

Most Popular Reply