Self -Directed IRA fees

[Robin C.]

Hi All,

I just purchased a rental home with my SD IRA. I've got another $40K that i'd like to invest. Do any of you have any recommendations as to what to invest in with this money? Something with low risk.

Thank you,

Robin

[David Thompson]

Robin, 

I like Chris' suggestion for you. Leveraging inside your SD-IRA has consequences that many folks don't realize and that is the UBIT (Unrelated Business Income Tax). Essentially, the IRS does not want you to benefit from profits made from the leveraged portion of your real estate investment inside your SD-IRA. So, they tax that portion of the gain attributed to the leverage % of your investment at sale which today is at the corporate tax rate, currently 35%. That's a pretty big hit. Now, if you don't have many choices (good balance of your funds in taxable vs qualified accounts like IRAs), then I've done the analysis w/an investor in our syndication and their CPA to show it still makes sense to make the investment based on expected returns.

However, since real estate is so tax efficient, strategically speaking if you have choices, ample cash in taxable and qualified plans, you should hold income producing investments inside your IRA that are not so tax efficient like notes that just distribute income in the way of interest. For leveraged real estate, that would be best IMO in taxable accounts. So, if you are looking to diversify and are looking at some leverageable assets versus strictly income generating assets that are not leveraged and are not so tax efficient like notes, you may want to look at taking that extra $40K and investing in this asset class (notes). Always review these decisions w/your accountant is a good idea since these rules could change. Bottomline, you should holistically look at your investment portfolio and choices available to you including where my assets are in taxable and qualified plans to help make your decisions, not just the return profile.