Hello, Of late I have started looking at my tax situation in retirement. I have ideas in my head but I am not finding the correct answers doing google searches. My tax bracket with SS and rental income from LLC or IRA will put me in 24% tax bracket.
1) Can I move IRA rental properties directly into a Roth IRA, or do i first have to convert the IRA rentals into cash pay the capital gains move cash to the Roth?
2) Can I move my rentals from my LLC into a Roth IRA or do they also have to sold, pay the capital gains and then move the cash into the ROTH and repurchase rentals.
If you own a rental in your IRA it can be converted into Roth. You would have to appraise the property and pay taxes since conversion is a taxable event.
There is no way to put property that you personally own into your retirement account.
You may not do either of the things you propose.
You may not transact with your IRA or make contributions to a Roth IRA in excess of the allowable $5500 per year ($6500 if you are age 50 or older).
If you have existing IRA funds, those could be setup so as to be able to invest in real estate.
Excellent, that solves one tax entity. Thats good to know and would help make withdrawals tax free during retirement. Plus I have heard some benefits to your heirs when a Roth is involved. The LLC properties are outside of IRA's, so if I am not tied entirely to them I could put $1M of them into a Charitable Trust with perhaps a 5% withdrawal and use the IRS rules for deduction moving assets into a Trust in the first 6 years to convert the IRA rentals to Roth IRA rentals. Might work.
You could process an in-kind conversion of the properties held in the traditional IRA to a Roth IRA. In addition to being able to convert cash in a traditional IRA, assets can also be converted in-kind.
In other words, a conversion is a taxable movement of cash or other assets from a Traditional or SIMPLE IRA to a Roth IRA.
When converting the rental from the ira (non chrckbook) to the roth, can the roth be setup as a checkbook? What are the advantages to the checkbook?
Yes you can convert custodial self-directed IRA into Checkbook. You need to work with a specialty firm (there are several of us who are active here on the forum who can help you) to create a special purpose, single member LLC. Then the property title would be transferred into the LLC, thus giving you checkbook control over this and any other assets you will purchase in it.
Here are some of the Checkbook IRA benefits:
- Ability to execute transaction directly without going through custodian or IRA Administrator, simply by writing a check
- Eliminate transaction fees and asset based fees (you will need to pick the right custodian with proper fee structure, the company you will chose to do this for you will help you make that selection)
- Eliminate delays and 'red tape' that often comes with having a custodian handle every single transaction, you can act on best investment opportunities immediately
Hope this helps.
In short, yes.
The following would apply:
1. Open a self-directed Roth IRA with a custodian such as IRA Services Trust Company.
2. Transfer the Roth IRA from the current IRA custodian to the new self-directed Roth IRA custodian (the self-directed Roth IRA custodian will handle this step).
3. Engage the services of a IRA LLLC (checkbook IRA) facilitator to register the LLC, obtain the EIN for the LLC and to prepare the special purpose LLC operating agreement .
4. Open the LLC bank account at your local bank.
5. Submit to the self-directed Roth IRA custodian the self-directed IRA custodian investment forms, LLC operating agreement, LLC EIN, and articles of organization.
6. The self-directed Roth IRA custodian will then wire the the Roth IRA funds to the LLC bank account.
7. Start investing.
Somewhere in between those steps I would guess the IRS would take their cut as reported by the IRA custodian?
The tax would be applicable only if you are doing Roth conversion.