Hey Self Directed IRA guys - Question on the JOBS act

5 Replies

I know there are a couple custodians here on BP - sorry, for the life of me I can't find any of you guys but I know i've seen some of you here and I have a question that I'm sure you could answer:

Did the JOBS act make a change to how one can use a SDIRA to buy Real Estate, or the warranties that a seller is required to give a buyer, effective Jan 1, 2018?  

I either half-paid attention to a conversation today, or this guy was mistaken, but I thought I heard something like "the SDIRA can only be used if the seller's broker or the seller has a securities license, and the seller has to warranty a specific rate of return"

Are there new regulations on SDIRA's?

Blair Poelman, Broker in Utah (#9299425)

Blair,

You probably misunderstood what you've heard. SDIRA can buy a property from anyone who is not a "disqualified person". Real estate broker handling a transaction is not required to have a securities license. Likewise, anyone can buy a property from an IRA (the same restriction above would apply).

Dmitriy Fomichenko, Broker
(949) 228-9393

@Blair Poelman

The individual may have been referring to the new DOL fiduciary rule (more formally known as the "conflict-of-interest" rule)  that also applies to IRAs and solo 401k plans. See bottom for more on this rule.

The only affect the Tax Cuts and Jobs Act of 2017 (P.L. 115-97) had on IRAs was the repeal of the rule permitting the re-characterization of Roth IRA conversions.

  • For 2017 and prior years, you had until October 15 of the following year to undo part or all of the Roth IRA conversion.
  • This rule is effective for Roth IRA conversions occurring on January 1, 2018 and after.
  • Therefore, even though you can still convert a traditional IRA to a Roth IRA, it may no longer be recharacterized (you can't change your mind) or reversed after 2017 . See Code Sec. 408A(d)(6)(B)(iii), as added by Act Sec. 13611).

Don't confuse the new rule with the recharacterization rule that applies to Roth IRA contributions wereby a Roth IRA contribution can be recharacterized to a traditional IRA. For example, if you make a Roth IRA contribution for 2018 and later decide to treat it as a traditional IRA contributions, you can do so as long as it is done by the due date of your individual tax return, so by April 15, 2019 in this example. This was detailed in the Conference Committee Report.

Lastly, the individual may have been referring to the new DOL fiduciary rule (more formally known as the "conflict-of-interest" rule) to that also applies to IRAs and solo 401k plans. 

The regulation is designed to ensure that investment advice about certain tax-advantaged savings account assets is in the best interest of the investor. Specifically, the DOL included IRAs, health savings accounts (HSAs), and Coverdell education savings accounts (ESAs) within the scope of the rules.

This rule became effective in 2017 but most of provisions wont apply until 2019 to give organizations time to update their internal policies and procedures.

This rule will also affect solo 401k plans. For example, this rule is meant to curve solo 401k providers from providing referral fees.

Solo 401k and IRA providers that become fiduciaries under the final rule generally will be subject to its compliance requirements. Certain arrangements will result in prohibited transactions.

The rule's main purpose is to increase the number of fiduciaries by broadening the term “investment advice.” Here is how the rule defines investment advice:

  • A recommendation to buy, sell, hold, or exchange investments or a recommendation on how to invest assets that are rolled over, transferred, or distributed from a retirement plan or IRA.
  • A recommendation regarding the management of retirement plan or IRA assets (e.g., investment strategies) or a recommendation regarding rollovers, transfers, or distributions from a retirement plan or IRA—including whether, in what amount, in what form, and to what destination a rollover, transfer, or distribution should be made.

As defined in the final rule, a recommendation is a communication that “would be reasonably viewed as a suggestion” to take a particular course of action or to refrain from doing so. The more the advice is tailored to the recipient, the more likely it will be viewed as a recommendation.

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