Is this a viable Self-Directed IRA transaction?

Question

Hi all,

I think I know the answer to this one but wanted to verify with the group.  I have a client that is interested in purchasing a commercial building utilizing funds in their IRA.  Post close they want to either rent a space within the building to an entity that my client has an equity interest in but will not be physically present or to sell the building to that entity.

To my mind both of these would be prohibited transactions but I wanted to make sure I wasn't missing anything.

Thank you

Carl Fischer · Answer

@Scott Marshall

Something seems off. The mere fact he is involving his Ira and has post closing plans suggests he is getting some benefit already.

Is it possible to be legit- yes. If his equity was 2 or 3% and the company just happened to like this building maybe but it seems a little far fetched.

Scott Marshall · Answer

Thanks @Dmitriy Fomichenko I appreciate it.

Scott Marshall · Answer

Thanks Brian, that's very helpful.

Dmitriy Fomichenko · Answer

@Scott Marshall

Your understanding is correct, since the client owns equity interest in this other entity, a transaction between his IRA and the entity would provide him with indirect personal benefit, which makes this transaction prohibited.

Brian Eastman · Answer

@Scott Marshall

It would depend on what that equity interest in the business entails.  The business would be disqualified to his IRA if his equity is >49% or if he has any kind of control over the company equivalent to a director position.

Even if the business is not disqualified, there could be issues with the transaction if it creates any kind of direct or indirect benefit to the investor.