Rental Property Investor · Springdale, AR · Member since 2017 · 60 posts · 48 votes
My mother has expressed interest in partnering with me on a multi-family purchase. She wants to utilize IRA funds to contribute to the deal. My question is, can she do this without having to pay taxes for pulling the money out of her IRA.
She has around $28K in the account. Can she use all of it as a down payment on a property? I would take out a loan to cover the remainder of the purchase.
Accountant · La Mesa, CA · Member since 2017 · 477 posts · 476 votes
8y
If it is a self-directed IRA, she can invest the money directly from the IRA into the deal. Be very, very careful about any prohibited transactions though as that will cause her too many problems. Talk to a self-directed IRA expert.
Accountant · La Mesa, CA · Member since 2017 · 477 posts · 476 votes
8y
If it is a self-directed IRA, she can invest the money directly from the IRA into the deal. Be very, very careful about any prohibited transactions though as that will cause her too many problems. Talk to a self-directed IRA expert.
However I know from my limited SDIRA experience, that you are a disqualified person with regards to your mother's SDIRA. This means she can't loan to you or any entity in which you control more than 50%.
In terms of a down payment it gets very confusing, but I believe any loan you get involving an IRA needs to be non recourse.
On a more practical note, SDIRAs tend to have higher fees and minimums associated with them so if your mom doesn't already one, I'd look hard to see if it made financial sense for the amount of money she has.
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
8y
Henry,
you will be considered to be a disqualified person to your mother's IRA. IRS rules prohibit any transaction between IRA and "disqualified person" so what you are proposing is not going to work, your mom's IRA can not invest in your deal.
Rental Property Investor · Springdale, AR · Member since 2017 · 60 posts · 48 votes
8y
@Brian Schmelzlen@Bill F. Thank you for the input. Ill see if there any SDIRA experts in Northwest Arkansas who i can speak with. And yes she already has the account, and has had it for years. She sees the possibilities with RE and wants to move some money out of this particular IRA to invest with me.
Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
8y
@Henry Washington I should have been more clear. While your mom has an IRA, it may not be a Self Directed IRA, which is what you'll need to invest in RE.
@Dmitriy Fomichenko has forgotten far more about this space than I'll ever know so he is the guy to ask.
Rental Property Investor · Little Rock, AR · Member since 2017 · 134 posts · 71 votes
8y
If it's a Roth IRA, she can pull out all the contributions at any time, penalty-free. That may be a good way to go since as the others said, you are disqualified as far as a self-directed IRA.
How old is your mother? If she's retirement-age, this all gets a little less tricky :)
Although you're a disqualified person to your mother's IRA you may be able to partner with her on a real estate investment and not violate the prohibited transaction rules. Whenever an IRA is involved in a transaction, the prohibited transaction rules should be given thought to at each stage of the investment.
Although you're a disqualified person to your mother's IRA you may be able to partner with her on a real estate investment and not violate the prohibited transaction rules. Whenever an IRA is involved in a transaction, the prohibited transaction rules should be given thought to at each stage of the investment.
Thank you for the response. Can you give me a little more detail on potentially how I can invest with my mother without violating the prohibited transaction rules?