Information Technology · West Chester, PA · Member since 2014 · 40 posts · 20 votes
If I have a self-directed IRA, can I loan a LLC money to fund a fix and flip? I am a 30% shareholder and I was reading that because of my equity percentage, my LLC is a qualified person/entity for this transaction.
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
11y
So much of the SDIRA situations have not been tested in court yet, so things could shake out better or worse.
But since a "prohibited transaction" blows up the IRA, why take that chance. It would be more prudent to error on the side of being conservative, rather than do one "little thing" that dissolves your total IRA. And when you IRS is blown up there will be real tax consequences.
If you have money in your IRA, that you want to lend out, lend it to somebody who is NOT a disqualified party. You'll probably even get a higher return on your money.
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
11y
check out the book "The Self Directed IRA Handbook" by Mat Sorensen. Its a 2014 book and an excellent read.
Page 44...."Personally loaning money to your IRA... is an extension of credit prohibited transactions."
You are a disqualified person vis a vis your IRA. You can lend money to somebody else's IRA, provided they are no a disqualified person, or you can borrow money from somebody else's IRA, provided they are not a disqualified person.
Investor · North Idaho · Member since 2011 · 332 posts · 107 votes
11y
Cory Land
You, an IRA can lend money to an LLC for a fix and flip. However, the general rule is that if you stand to benefit personally as a result of the transaction, the investment is deemed prohibited. If you are merely a silent investor, you may have options.
I've worked with many people in this exact scenario and it boils down to doing things different than you do now if you wish to involve your IRA.
Do you mind sharing more details? How many people are involved? Do they have any relation to you? Who manages? What is your role? How do you structure your deals? All these questions will clarify where your IRA has options for involvement.
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
11y
So much of the SDIRA situations have not been tested in court yet, so things could shake out better or worse.
But since a "prohibited transaction" blows up the IRA, why take that chance. It would be more prudent to error on the side of being conservative, rather than do one "little thing" that dissolves your total IRA. And when you IRS is blown up there will be real tax consequences.
If you have money in your IRA, that you want to lend out, lend it to somebody who is NOT a disqualified party. You'll probably even get a higher return on your money.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
11y
IMO, there is no silent position, the terminology used is "benefit" that goes further than anyone trying to find loopholes. You loan to your LLC, it benefits, makes a profit, that reduces your liability in paying an expense, that is a benefit. This is comingling funds and doing so will always have aspects that taint other funds. As David mentioned, lend it to someone else. :)
Information Technology · West Chester, PA · Member since 2014 · 40 posts · 20 votes
11y
Thanks everyone. This sounds like a situation that is possible but could have severe consequences on my behalf. I don't want to jeopardize my assets or my companies integrity.
We (the LLC I am part owner in) are beginning to scale and look for additional financing but will rule out the above scenario.
If I have a self-directed IRA, can I loan a LLC money to fund a fix and flip? I am a 30% shareholder and I was reading that because of my equity percentage, my LLC is a qualified person/entity for this transaction.
As others have stated, the short answer is No you cannot. However, if your SDIRA can be converted in whole or in part to a Self-Directed Solo 401(k), you can lend yourself up to 50% of the value to be used for any purpose. CAVEAT: Check everything I just said - I know just enough to be dangerous on this subject, but I do have a Solo 401(k) and I can lend myself 50% value for any reason, as long as I follow the compliance rules.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
11y
Qualified accounts do have provisions for borrowing under certain purposes, buying a home is one, (medical and education as I recall) however funds must be repaid within the time frame (that tax year or qrts, I believe). Exceptions may exist for medical costs. Can't comingle funds with any business venture, however.
Tapping a retirement account is a bad idea IMO, leave it alone personally, SDIRA investing is fine to grow your account, you'll be 62 1/2 before you know it! :)
Information Technology · West Chester, PA · Member since 2014 · 40 posts · 20 votes
11y
Yeah I agree tapping the retirement account is a bad idea. However, if I can give my IRA a 10% return over 6 months then that would be better than most index funds returns in the stock market. Since I would be partly in control of the deal I can actually feel safer then betting Wall St will continue it's run. Having said that, I guess I'll keep my assets riding this bull and reevaluate my SDIRA options when I think we are topping.
Rental Property Investor · Jersey City, NJ · Member since 2014 · 33 posts · 21 votes
5y
@Cory Land did you ever get a clear answer on this? I'm in a similar scenario. The way I'm reading the IRS guidance is that if you own less then 50% of the LLC, you are not considered a disqualified person.
I have almost the exact scenario you described above. 30% owner of the LLC, passive partner.