Rental Property Investor · Concord, CA · Member since 2016 · 499 posts · 219 votes
I have a leveraged property in my SDIRA (at equity trust), a note and some cash. My questions are:
1. For Equity trust, I need to send a deposit coupon every month with the rental check. Is there any way around it? I am thinking about the future in case I decide to spend more time outside the country, then I won't be able to send the checks.
2. Based on the above, is there any SDIRA that allows direct deposit from the property management company?
3. Is there a way to take the property out of SDIRA? I know I will have to pay the penalty but I think its worth it
4. I might be able to open a solo 401k in the next month or two. Can I transfer the property (and everything else) to solo401k from the SDIRA?
1. Consider Checkbook IRA. Also you can have your property manager send rent checks to your custodian with the deposit coupon.
2. not with the custodial account, but if you were utilizing a Checkbook IRA structure you could do that.
3. Yes, you can distribute the property out of an IRA to yourself using in-kind distribution. Remember that taxes would apply and if you are doing it before normal retirement age you would have to pay penalties to the IRA in addition to that.
4. Yes you can do in-kind rollover of property and the note from your self-directed IRA directly into Solo 401k. This would solve all of your issues: you can arrange a direct deposit of the rent proceeds into your 401k trust bank account, you document all deposit internally as plan administrator, you get rid of the custodian fees and all the 'red tape' that comes with it, AND since your property is leveraged you would get rid of UBIT on the income that is derived from the financed portion of the property.
Yes, I would also recommend the Solo 401k to solve the issues you have with your current custodian. If you are eligible for the plan, you'll pick up a lot of other advantages in the transfer as well, including an exemption for the UDFI tax your IRA currently has to pay on the leveraged property.
1. I open a company but it doesn't generate any income in 2016 (only 2 more months left) but has the capability to generate income in the future. Should I open the Solo 401k in 2016 or 2017?
2. If I open the solo 401k in 2016 and transfer the SDIRA, do I still need to file UDFI for the months it was in SDIRA or it doesn't matter?
Apologies for so many questions. Still trying to wrap my head around this.
In order to establish a Solo 401k plan legitimate business activity need to be present with reasonable expectations of generating profits. Income is required in order to make contributions.
Yes, you would still be responsible for any UBIT taxes while you had an IRA for the part of the year.
1. If there is no 2016 income to contribute to the plan, there probably isn't such a big incentive to make the 12/31/16 deadline for Solo 401k adoption. Many people rush to make that deadline so they can save more money on taxes for the year. Absent of that incentive, it's really up to you when you'd like to have the additional benefits the Solo 401k provides.
2. Generally, UDFI will be due on the income that went to IRA, but not on the income that goes to the Solo 401k after the transition. Transferring the asset to the Solo 401k will not erase the taxable income that already went to the IRA. It will just stop future UDFI on the asset once it is owned by the Solo 401k.