There were 2 commenters after this podcast, but no responses from anyone about their issues.
In the podcast, it was not clear whether the person interviewed violated IRS rules about using self-directed retirement monies on projects he did. I am trying to understand what exactly he did and how it stayed within the bounds of IRS rules.
There weren't enough details given as to how the self-directed money was used on a project that either he (or his company) worked on and stayed legal with the IRS.
Sonny, I don't have the time to listen to the entire podcast but if you can point me to the time where he discusses use of an IRA I can listen and give you my feedback.
Okay, I found the section where he discusses using his self-directed IRA to do his first flip. When you have a self-directed IRA you can invest in pretty much any alternative asset, including real estate. So I'm assuming that he did not do flip personally, his IRA did, and he obviously controlled it.
Here is what he said regarding being personally involved in the deal:
"Managed to reign in a lot of expenses by doing most of the work myself which I feel is probably the way everybody should start."
If my understanding is correct and his IRA owned the property, and he personally worked on it - that is prohibited transaction. See, he is considered to be a "Disqualified Person" to his IRA and the IRS rules clearly prohibit any personal involvement in IRA transactions. Here is a link to the IRS website:
The key items to understand when investing a self-directed IRA in real estate include the following:
1. Title to the property is taken in the name of the self-directed IRA.
2. Funds flow directly from the IRA to the seller.
3. All expenses and income flow through the IRA.
4. You cannot perform sweat equity work on the IRA owned property.
5. You can perform managerial functions such as hiring contractors, but you cannot be compensated for these management services.
It looks that he used a Checkbook IRA (aka IRA owned LLC), which give great flexibility and control to the account owner, but if you don't know the rules it would be easier to commit a prohibited transaction with this vehicle.
Some questions came up as a result of your interview on the podcast. You discussed using your IRA to do your first flip, while personally doing majority of the work. This seem to confuse the listeners, can you clarify for us how you structured that transaction and to what extend you were personally involved in it?
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