Assigning a contract to your Self Directed IRA

[Pedro Martins]

Question to the folks very knowledgeable about self-directed IRAs:

I recently won the bidding for a property at a courthouse foreclosure auction - my "registration" at the auction was under the normal LLC I do business with (buy and hold) so that's where the deposit for this property (10%) was paid from.

I have not closed on the property yet. I have a checkbook self directed Roth IRA. Would it be a prohibited transaction if at closing I "partnered" with my IRA LLC for a 50-50% split of the property. I would obviously take care in the future of making sure all income and expenses were clearly split and there was no commingling of funds, but my biggest question is whether I can do that "assignment" of the contract from my normal LLC as the purchaser to the 50-50% with the IRA?

I have not found a clear answer anywhere... appreciate any feedback.

[Dmitriy Fomichenko]

@Pedro Martins,

Here is the issue when IRA partners with "disqualified person":

The IRS could easily claim that such transaction violates the IRS conflict-of-interest and self-dealing prohibited transactions in accordance to the IRC 4975(c)(1(D),(E) and (F). Most of the times the reason someone is considering pulling personal funds together with their retirement funds is because there is not enough funds individually to make such investment. Therefore making the investment personally benefited the IRA account holder, since without pulling the retirement funds, the real estate investment could not have been made. This is very easy case for the IRS to declare such joint investment to be a "prohibited transaction".

If IRS determines that your IRA engaged in a prohibited transaction the penalties can be up to 100% of the IRA value. Ask yourself this question: "Do I want to take that risk or rather do a 'clean' investment that would not create any issues with the IRS"? If you have a self-directed IRA your investment options virtually limitless, I just don't get it when people try to be 'creative' and putting themselves as such great risk when they can make other investments that can provide the same returns without taking the risk...