Can my wife and I combine IRAs for the purposes of a Real Estate Self-Directed IRA?

19 Replies

Hello BP,

In order to gain greater buying power (sooner) I was wondering if it's legal or if anyone here has ever combined their spouses 401k to use in a self directed 401k trust to purchase real estate property.

  • I understand how a trust would work (all monies have to flow through the custodian, etc..)
  • I will probably follow up with my tax advisor / financial advisor / trust companies

All the same, just wondering if anyone has experience w/ this "strategy"?

Thanks in Advance,

-Alonzo

@Alonzo Garza

It is possible to pool the resources of your IRA with those of your spouse for real estate investing. How to best accomplish that will depend on your situation and goals, and the type of self directed plan that will work best for you.

Caution must be exercised to establish the right plan structuring and track the individual participation of each IRA into an investment carefully.

With proper guidance, this is relatively easy to do effectively and safely.

A discussion with your CPA and a quality provider of self directed plans will be the best way to start.

Hi, you have gotten some good advice already. 

I/we did this with my brother and father (my brother and I are 'prohibited parties' to our father). We all used SDIRAs, not Solo 401Ks, but I am *guessing* that the process would be similar. 

The biggest caveats I would say are these; 1) Use a professional who is EXPERIENCED in this. I could not find a local lawyer who would touch it since it is such a specialized area. 2) What ever 'ratio' ownership is when the company is formed, it must ALWAYS stay the same for all practical purposes. In our case we are each own 33.33%, in your case it might be 50-50. As spouse, it might now be as big of an issue, for us, we all had to look real hard at our goals long term. 

We used UDirect IRA out of California as a custodian, and KKOS Lawyers out of Cedar City Utah for setting up the 3 way LLC. Im sure there are many members on here too that could help with those services (both of the people we used were refereed to me by other members on here).

Hope that helps a bit, 

Dan Dietz

there are a couple custodians out there that do primarily SDIRA's. 

I've used equity trust, horizon, and Accuplan. The only one I wouldn't recommend is equity trust, despite their size, they were completely disorganized and incapable of processing a transaction for me. 

I just did something like this for me an my wife's Roth IRA through a "checkbook" SDIRA. The Roth IRAs are both transferred to the same custodian, and they both become members in the same purpose created LLC, which then opens a checking account that gets funded with your IRA moneys, and from where you do your investing.

What's important in that setup is that once the 2 IRAs have invested into the LLC (each IRA is a member in proportion to the amount invested) you can never add more money into the LLC with future IRA contributions because the LLC becomes a prohibited party after it gets funded (or this is what the lawyer explained anyway). If you get a lot of contributions over the years, you could always create a second LLC from these contributions at a later stage.

I did a lot of research about fees and used iraservices.com as the custodian (lowest fees that I could find) and mysolo401k.net to create the LLC for $800 (they work together with the custodian).

I hope this is useful, and most importantly, factually correct (Any experts seeing something wrong with this, feel free to correct me).

Jean

If you want to have a property owned some % by your Ira and another % by another person - it is possible without LLC. All income and expenses just going in % to/from both accounts and you could even get a leverage as non recourse mortgage if you need, but in this case you will need to file an additional tax return. ETC Trust makes everything understandable and simple. I am not sure for what purpose you would need a lawyer

@Jean , I have heard others mention on here too that you could not make 'any additional contributions' once things were set up, and have questioned that from what our lawyer said when we set ours up. 

My *understanding* is that in our case, where each of us own 33.33% of the LLC (all with SDIRAs) that any additional funds would all have to be invested into the LLC in the EXACT same portion.... meaning we could not 'change the make-up' or ratio of how things were set up.

I think I will follow up with my lawyer who set things up as we are on the verge of rolling more funds into the LLC so we can purchase another property.

I would love to hear any of the experts on here chime in too :-) @Dmitriy Fomichenko or others.

Thanks, Dan Dietz

@Alonzo Garza

As others have mentioned, yes it is possible to combine retirement funds with your spouse's retirement funds for investment purposes. Do seek the proper guidance to be sure it is done correctly.

Also of note, a non-recourse loan may be helpful in obtaining real estate with your retirement funds.

I had quick question regarding the percentage ownership of LLC when using SDIRA route to fund an LLC. Can one person's IRA be more than 50% owner? In our case - 4 partners - 2 couples. Can one couple own more than 50% of the LLC?

@Jan Shumbi

First, welcome to BiggerPockets!

Now to answer your question: the percentage split can be anything all the partners agree, it doesn't have to be equal. Also, the percentage split is determined by the amount of funds each partner contributes to the LLC.

In terms of investing by combining with spouse, I think the following structure would work and still provide flexibility, but curious whether anyone has any thoughts.

E.g. Husband has $100 in self-directed IRA, which has been funded into an LLC that his IRA owns 100% (H LLC); Wife also has $100 in a self-directed IRA, which has been funded into a separate LLC that her IRA owns 100% (W LLC). If husband and wife wanted to combine their funds to invest in something that, e.g. costs $50, I would think that they could form a new LLC (HW LLC) and have H LLC and W LLC each contribute $25 for 50/50 ownership. That new LLC (i.e. HW LLC), would be a disqualified person going forward and would always have to remain 50/50. However, H and W would still each have $75 left in each of their respective LLCs, and I would think could use those LLCs to continue to make their own separate investments (or even potentially combine again into another separate LLC (HW2 LLC) in similar fashion as above to buy a second property). Sound right?

@Tim Stephenson

What you propose would work. As you have noted, the key problem with any entity formed between IRA accounts of disqualified parties becomes a one-time funding shot. The other concern is that a partnership LLC as you describe would need to file a partnership tax return at the state and federal level. The K-1's resulting from the federal return go in a file drawer. Not all states will see the underlying IRA partners as tax-exempt however, and may want to tax the partnership. Be sure to check with your local state-knowledgeable CPA. It might be simpler to just have the two IRA-owned LLC's vest title to a project property as tenants-in-common and forego the project LLC.

That's helpful, thanks. Would maintenance become a challenge though? (e.g. every bill on the property would have to be paid 50/50 by each separate LLC and each tenant payment would be to owners as tenants in common and distributed 50/50) -- seems like you'd almost have to have a 3rd party manager

@Dmitriy Fomichenko

@Daniel Dietz

Sorry to resurrect an old post.  I have a question about a point that was made and wanted to see if you could provide some clarification.  My wife and I have setup SDIRA's and are yet to purchase a property with them.

I had planned to setup an LLC with 50% ownership from each SDIRA. I had planned to continue to contribute to the IRA and invest more in the LLC each year (in equal amounts). Buy and sell assets in future years with the LLC whether properties or mutual funds.

Is this possible or is the one time contribution correct?

Is it more appropriate to use the SDIRA's to fund Project specific LLC's?

Thank you for your time,

Kyle

@Kyle Rutz

It is possible to use an IRA to invest into an LLC. However this is not a DIY project. The LLC must be setup to meet the IRS-requirements, otherwise your IRA is running a risk to being disqualified. Co-investing alongside with your wife's IRA brings up another set of challenges. You are welcome to PM me so we can discuss the specifics of your situation.

@Kyle Rutz

My recollection at the time, which as an 'after fact' when I realized all this as we jumped in kind of fast in setting things up when an opportunity arose, is as follows;

You CAN set up an LLC with a disqualified person such as a spouse, but there are a TON of rules and restrictions if you do.

One is that once that original investment is made, we could not contribute any more to THAT particular LLC, although we could have formed another similar one I believe. Essentially you are 'froze' as to the original structure and contributions.

The hassle did not seem worth it to us to continue this way. A NON disqualified party bought out the partner that was disqualified and now we operate as an ongoing LLC made up out of 3 non-disqualified parties and all is well.

Would you or your wife have enough in your accounts to do deals each on your own? Or possibly each of you partner up with someone that is NOT disqualified? 

IF you choose that route, I would DEFINITELY recommend using a Self Directed Specialist Attorney to do it. 

I am a HUGE proponent of investing with SD accounts, but the disqualified party things is the biggest thing to throw a wrench in the works. 

Dan Dietz