Camarillo, CA · Member since 2013 · 9 posts · 3 votes
Hey All,
I've become interested in the idea of a self directed IRA as I'm growing increasingly put off by my Edward Jones dude trying to convince me that a 6% rate of return is awesome. I'm also looking into the prospects of a self directed IRA because I'm intrigued by the idea of having tax liens within such an IRA.
That said, what self-directed IRA would you all recommend? Has anyone tried Guidant Financial? What are the pros and cons you all have experienced with a self directed IRA?
Blue Bell, PA · Member since 2012 · 3 posts · 6 votes
13y
Hi Mike,
Self-directed retirement accounts give you the freedom to invest in the things that you know and understand best - not what your advisor at Edward Jones thinks is best. We have many clients that purchase real estate for the purposes of renting and rehabbing. With rehabbing, all expenses relating to the property need to be paid with the cash in the IRA, since the IRA is the property owner. Everything flows in and out of the account nicely, with the goal being that you're making a profit and watching it grow either tax-deferred or tax-free (in a Roth account).
Can I flip a house using my IRA is a question I often get asked. Technically, the answer is yes, you can flip a house using your IRA. The better question is do you want to flip a house inside your IRA. What can become involved when you flip a house with your IRA is Unrelated Business Taxable Income (UBTI). You can't have an unfair advantage over the competition by not paying taxes. When you flip a house with your IRA, the IRS might consider the house inventory and require taxes to be paid. Usually one or two within a year will not raise any red flags.
Tax liens can be a great alternative to flipping if that is something you are looking into.
Investor · Omaha, NE · Member since 2011 · 475 posts · 211 votes
13y
Greg W.I used Guidant to set up my SDIRA 6 -7 yrs ago and have not regretted it. I don't use it for liens and own multifamily in my SDIRAS. I found them easy to use and like their hands-off approach as I enjoy having complete checkboook control.
Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
13y
I use SD IRA services inc. based in Austin. I have invested in some Private placement hard money funds through that SD IRA. Great service from them so far.
Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
13y
Originally posted by ANISH TOLIA:
I use SD IRA services inc. based in Austin. I have invested in some Private placement hard money funds through that SD IRA. Great service from them so far.
Specialist · Phoenix, AZ · Member since 2011 · 698 posts · 629 votes
13y
Greg W. I just set up my i401k with checkbook control through Sunwest Trust out of New Mexico. They have SD IRAs as well. They've been around since the 90's. Happy so far.
Using mine for tax lien investing. I opened the savings/checkbook account for the i401k locally so it works great. Although I had my credit union not understand what an i401k was. Had to open the account with a local bank instead.
Rolling over the old 401k into my own i401k is something I should have done a long time ago. BP helped me learn bout the options and the companies that offered them. Just bought my first lien a few weeks ago and now earning 16% on that portion of the money.
Blue Bell, PA · Member since 2012 · 3 posts · 6 votes
13y
Hi Mike,
Self-directed retirement accounts give you the freedom to invest in the things that you know and understand best - not what your advisor at Edward Jones thinks is best. We have many clients that purchase real estate for the purposes of renting and rehabbing. With rehabbing, all expenses relating to the property need to be paid with the cash in the IRA, since the IRA is the property owner. Everything flows in and out of the account nicely, with the goal being that you're making a profit and watching it grow either tax-deferred or tax-free (in a Roth account).
Can I flip a house using my IRA is a question I often get asked. Technically, the answer is yes, you can flip a house using your IRA. The better question is do you want to flip a house inside your IRA. What can become involved when you flip a house with your IRA is Unrelated Business Taxable Income (UBTI). You can't have an unfair advantage over the competition by not paying taxes. When you flip a house with your IRA, the IRS might consider the house inventory and require taxes to be paid. Usually one or two within a year will not raise any red flags.
Tax liens can be a great alternative to flipping if that is something you are looking into.
Rental Property Investor · Charlottesville, VA · Member since 2012 · 1k+ posts · 726 votes
13y
I'm using Accuplan and have been happy with them so far. Set up as an llc with checkbook control. Only doing buy and hold real estate so far but may also do some tax liens or notes. I have a sfr a duplex and a triplex in it and it is returning 1-1.5% a month not counting any appreciation. Much better than I was doing in the stock market.
Note Investor · Berea, OH · Member since 2013 · 5 posts · 1 vote
13y
I can confirm that a self-directed IRA can most certainly be used for rehabbing and flipping properties, and not just for rental income. Any avenue of real estate investment that interests you is certainly within the possibilities of a self-directed IRA--along with the greater potential returns that come with it.
Costa Mesa, CA · Member since 2013 · 1 post · 0 votes
12y
RE: New Standard IRA Services in Austin, TX
Has anyone had any experience with New Standard? They market themselves as a consultant in helping to set me up with an SDIRA, as opposed to being a 3rd party administrator. They use IRA Services Trust Co. as the custodian. I am new to this SDIRA concept and need some guidance please.
Duplex Investor · Littleton, CO · Member since 2010 · 15 posts · 4 votes
12y
I am looking into this sdira stuff too. I believe if you want a solo 401k you have to have a business? I know the 401k allows for larger contributions than an ira. So, what I was thinking was to set up an S corporation and pay myself a salary for managing my rental properties that I own outside of my ira. May as well make the cash flows of my taxable rentals even more useful. And then I would have "earned income" to be able to set up and contribute to an i401k. But I am still wondering about the UBIT. What kind of situations/events would trigger that?
I am looking into this sdira stuff too. I believe if you want a solo 401k you have to have a business? I know the 401k allows for larger contributions than an ira. So, what I was thinking was to set up an S corporation and pay myself a salary for managing my rental properties that I own outside of my ira. May as well make the cash flows of my taxable rentals even more useful. And then I would have "earned income" to be able to set up and contribute to an i401k. But I am still wondering about the UBIT. What kind of situations/events would trigger that?
The wages are subject to Social Security and Medicare. Thereby increasing your tax rate on that income. You are better off just utilizing the IRA at the moment if you have other earned income and find an alternative business to fund a solo 401k.
Do not take sheltered money and make it unsheltered if at all possible.
Duplex Investor · Littleton, CO · Member since 2010 · 15 posts · 4 votes
12y
Thanks for your input Steve. I was aware of the taxes on "earned income". I too am an accountant and tax preparer. And sadly I don't have any other earned income. My main concern is how the UBIT applies to the i401k because I know that money can be taxed at up to 35%. I may have to find and read some IRS publication. And I'm sure you know those are such a joy to read! And to throw one more option into the ring, I am looking at New Direction IRA located in Louisville, CO. I already have a small IRA account set up with Equity Trust but I just read somewhere that they are involved with some kind of lawsuit ala Bernie Madoff and Intrust is also involved? It's all just kind of scary.
Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
12y
@Steven Hamilton II - this question has come up before, where someone wanted to elect to treat their rental property income as active business income so that they could generate tax-qualified contributions into a SD401k. Is this even permissible by the IRS?
I would assume that the IRS deems rental property income to be a passive activity, and expects you to report it this way. Otherwise, someone could game the system a bit, particularly if they're already earning 110k+ from other jobs or businesses, such that their incremental SE taxes are maxed out on SSI and they're just paying the 2.9% medicare. It might be worth it to pay that in order to generate income that can be contributed to a tax-qualified plan. As a result, I would be skeptical that this would be permitted.
@Steven Hamilton II - this question has come up before, where someone wanted to elect to treat their rental property income as active business income so that they could generate tax-qualified contributions into a SD401k. Is this even permissible by the IRS?
I would assume that the IRS deems rental property income to be a passive activity, and expects you to report it this way. Otherwise, someone could game the system a bit, particularly if they're already earning 110k+ from other jobs or businesses, such that their incremental SE taxes are maxed out on SSI and they're just paying the 2.9% medicare. It might be worth it to pay that in order to generate income that can be contributed to a tax-qualified plan. As a result, I would be skeptical that this would be permitted.
Duplex Investor · Littleton, CO · Member since 2010 · 15 posts · 4 votes
12y
@David Beard I would assume that the IRS deems rental property income to be a passive activity, and expects you to report it this way.
Since rental income IS passive activity that is why I would set up a separate management company and pay myself a salary to be able to have earned income and contribute to a retirement plan. The rest of what you say is interesting though and maybe should be considered if it will help you pay less in taxes. I am just a poor person and don't have to worry about the upper limits on SS. My taxable rentals are held in an LLC. I am fairly certain I would be allowed to do this. A lot of S corporations "rent" facilities from their owner and that is legit. Maybe Steve could weigh in on this?
@David Beard I would assume that the IRS deems rental property income to be a passive activity, and expects you to report it this way.
Since rental income IS passive activity that is why I would set up a separate management company and pay myself a salary to be able to have earned income and contribute to a retirement plan. The rest of what you say is interesting though and maybe should be considered if it will help you pay less in taxes. I am just a poor person and don't have to worry about the upper limits on SS. My taxable rentals are held in an LLC. I am fairly certain I would be allowed to do this. A lot of S corporations "rent" facilities from their owner and that is legit. Maybe Steve could weigh in on this?
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
12y
Kathy, the beauty of rental income is that you have so many paper deductions to offset that income. Using said income to move it/convert it to regular income from management fees just to contribute to a 401k seems like a waste of time and effort to me.
Better to form a RE business (or any business for that matter) that makes money, has no employees other than a spouse, and then open a 401k for it and start contributing from the earnings from that business, not from your already earned rental income.
For example, you could start a RE biz that flips houses or wholesales, or whatever. With the income, you can then contribute to your new 401k and the company can also match contributions well above the IRA limits. Plus, you get borrowing provisions from the 401k, you do not with the IRA.
Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
12y
Hey, @Steven Hamilton II and @Will Barnard , since we're now talking about generating active business income to contribute to a SD401K, consider the scenario where I'm partnering with a rehabber and splitting the profits 50/50. If the deal is structured such that the rehabber's LLC is solely on title, and I'm carrying a 1st mortgage with profit participation, how do I treat the profits that I earn? Active income or passive interest income?
Then contrast that with a JV situation where we're both on title. Pretty obviously it's business income for both parties in the 2nd scenario.
Hey, @Steven Hamilton II and @Will Barnard , since we're now talking about generating active business income to contribute to a SD401K, consider the scenario where I'm partnering with a rehabber and splitting the profits 50/50. If the deal is structured such that the rehabber's LLC is solely on title, and I'm carrying a 1st mortgage with profit participation, how do I treat the profits that I earn? Active income or passive interest income?
Then contrast that with a JV situation where we're both on title. Pretty obviously it's business income for both parties in the 2nd scenario.
You SHOULD have the profits flow through a corporation or other type of entity. Then you could re-characterize it legitimately. Assuming you are only a cash investor, it would be passive. If it was something you do regularly, it would be active. If you look for and acquire the deals its active. All depends upon the details.
Actually the JV vs partnering there is no difference. It all depends upon your situation.
Either way income should go into a corp and then pay a salary and profit sharing/ other benefits.
Assuming you are only a cash investor, it would be passive. If it was something you do regularly, it would be active. If you look for and acquire the deals its active. All depends upon the details.
Thanks, Steven, I'm not sure I'm following you here. I'm definitely passive in the deals (in that I'm doing no work beyond initial deal review and inspections), but they are structured as profit-sharing mortgages, where I simply hold a mortgage and am not on title. Now let's say I make multiple loans, but I'm still a passive lender in each deal. I just happen to be compensated based on a share of the profits. Is this a different tax characterization than if I were lending at a straight 15%, for example?
I've certainly been under the impression that someone can make as many private loans as they wanted and the income is passive income and not subject to SE taxes. But if a profit-sharing note taints things from a tax standpoint, then it seems more prudent to just go with a straight interest-bearing note (or interest + points).
Assuming you are only a cash investor, it would be passive. If it was something you do regularly, it would be active. If you look for and acquire the deals its active. All depends upon the details.
Thanks, Steven, I'm not sure I'm following you here. I'm definitely passive in the deals (in that I'm doing no work beyond initial deal review and inspections), but they are structured as profit-sharing mortgages, where I simply hold a mortgage and am not on title. Now let's say I make multiple loans, but I'm still a passive lender in each deal. I just happen to be compensated based on a share of the profits. Is this a different tax characterization than if I were lending at a straight 15%, for example?
I've certainly been under the impression that someone can make as many private loans as they wanted and the income is passive income and not subject to SE taxes. But if a profit-sharing note taints things from a tax standpoint, then it seems more prudent to just go with a straight interest-bearing note (or interest + points).
There is not much difference; however, why would I want it all passed to me as interest?
I would just run it through a corporation, pay a salary based upon the actual hours spent(very minimal). Also would allow for profit sharing to a 401k with a few other perks.
Cohasset, MA · Member since 2013 · 14 posts · 1 vote
12y
I have used Millenium out of Chicago area. Inexpensive trustee services and easy to work with. Not sure if they provide investment advice, or if you need it. I am part of a group interested in hard money for renovation deals in Mass. Contact me if your interested.