SD-IRA invsting in partnership

12 Replies

Scenario: My SD-!RA plans to invest in a partnership as a limited partner. There are other general partners (not IRA's). There will be a JV agreement to invest in the purchase, development, and sale of real property. The partnership will file a 1065 with the IRS.

What will I need to be fully legitimate? What will my trustee need? (Equity Trust) Ask them, you say? Of course, but they say someone will call me back in 24-48 hours and time is of the essence.

If time is of the essence, good luck getting Equity Trust (or most custodian) to react quickly enough.

Your IRA is buying a security in the partnership. I'd guess its structures as an LLC and you would be buying one or more units in the LLC. The managing partner would be the managing member (if they own units) or just manager (if not.) The actual owner of the unit would be something like "Equity Trust FBO Jon K account #xxx" or something similar. You should be able to find the exact wording on their web site. They probably have an "investment direction" form that you would fill out with the info about the proposed investment. You will have to provide the operating agreement, articles of incorporation or other documents about the investment. Again, check their form, it should say what they want to see.

There aren't any shares in the LLC to purchase. The JV is among entities and he is making a contribution and taking a distribution.

I think the main points are that:

1. The SDIRA entity is not a signer on the bank account
2. Jon is not in control as the manager

Any other commentary is certainly appreciated.

Jon K., I've done exactly this with an ETC IRA and and ETC 401k. I can probably help you with the wording on the partnership docs, but the problem is this. When you submit your DOI to ETC, they will review it and if they don't like something about it, will refuse to fund and will require changes.

So "Time is of the esssence" and "Equity Trust" are not two concepts that work together well. This is exactly the reason that I placed my new inherited IRA with Udirect, based on @Bryan Hancock 's recommendation. They have been awesome to deal with in comparison, and I am very happy with them. I still have investors in my lending business who use ETC, and I dread each transaction. In fact, I'm in a dispute with them right now about a Roth 401k contribution. They are horrible to work with.

So, if you PM or email me separately, I can probably help with the wording for the JV agreement, and then you can take it from there. I'm up early so will answer you then.

Units in a LLC, shares in a corporation, or investments into a limited partnership or JV - its all the same. Jon K. describes it alternatively as a partnership with limited partners and as a JV, so I'm not sure which it is. But the concept is the same. Jon's IRA is an investor in some entity. Equity Trust will need a form. This form, in fact.. The specific wording you need (from this form) is: 'Equity Trust Company Custodian FBO “Account Owner’s Name” IRA'.

I have an account with these guys, having been converted over from Sterling Trust. But only one investment still here. Like @Ann Bellamy I got tired of the delays and run around and after two screwed up deals set up an account using Guidant.

Thanks Jon and Ann. Very helpful. I PMed you, Ann.

Originally posted by Jon Holdman:
This form, in fact.. The specific wording you need (from this form) is: 'Equity Trust Company Custodian FBO “Account Owner’s Name” IRA'.

Fantastic! Thanks Jon. Most appreciated!

@Bryan Hancock @Jon Holdman I know this has been covered before, but I just need clarification. This makes it seem like I can partner with my SDIRA, but previous comments have make it seem like a prohibited transaction.

If I want to rehab and flip a house, can my IRA be a partner with the LLC that will buy the property (that I will have 100% control over)? For sake of example, the purchase price will be 20k, my SDIRA will take an undivided interest of 25%, or 5k. Rehab costs will be 80k, so 20k will come from IRA. Remainder of funds will come from me, via the LLC. 25% of profit will go back to IRA

Is this prohibited or not?

Be nice if there was a solid answer to that question, wouldn't it. There is not.

If the IRA is putting its $25K into a LLC you control, its a clear prohibited transaction. But if you form a new LLC, perhaps its OK. OTOH, now that LLC has to follow all the rules about being your IRA. That is, you cannot do any of the work, not can you just kick in more cash out of your pocket if needed. You can't personally get paid for anything the partnership does. ETC. I think the best advice is to just avoid doing this.

Would doing a Solo 401k get around these issues? If I undersand correctly, I can borrow up to 50% of the 401k balance up to 50k, so I can just take this money and apply it towards my flips?

It should Mike. The money you cite above should be able to be used for ANY purpose. It is special money though so use it for your best use. After you cap out on that $50k you'll have the same problems.

Just a heads up for anybody interested, If your sole intention is to be able to borrower against a solo 401k, the best and only option from the major brokerages seems to be ETrade. The others won't let you take a loan against the 401k. I know this isn't a self directed option, perse, but they have no fees!

Oh yes, before I forget. One of the additional benefits of the C Corporation is that it can purchase company stock.


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