Can I assign a contract to my self-directed IRA?

Question

My guess is "no".  Still in the process of funding my Roth IRA LLC and there's a property I would like to make an offer on but I won't have the $ in the LLC account for another 10 days or so to be able to write the earnest money deposit check under the LLC name.  So .. any chance I could get the house under contract & then assign it to the LLC?

Rick Baggenstoss · Answer

Write the contract with the IRA name even though it's not funded.  Explain to the seller EM is coming from your SDIRA with the holder until then.  It'll work out once things are funded.  I'm suffering thru this now.

If you write it in your name, you'll just need to redo the signature page.  Warn the seller and you'll be fine.

I assume the offer is the same, e.g. cash same closing timeframe, etc.

Good luck!
Rick

Jon Holdman · Answer

No. That would be a prohibited transaction. You and your IRA cannot do any business with each other.

Aaron Mazzrillo · Answer

Self-dealing = big no-no.

Pat L. · Answer

I would also be interested...the initial buyer is an unrelated & 'arms length' party. That buyer then 'sells' the property to the newly funded etc LLC.

The only self dealing that could be construed would be the verbal, undocumented agreement to purchase the property from the initial buyer.

This is exactly what we did @ a tax auction & it certainly passed scrutiny on the audit of us re-selling it 3 years later to another arms length buyer. Although they did request LLC documentation & the addendum to the Op Agreement regarding the decision to buy said property from the initial buyer along with the sales contract (we avoided a double closing or an assignment per se).

What was interesting is that I think they were looking for a transfer of ownership @ the same price as what it was originally purchased for by the initial buyer. However, we had added some rehab costs completed by the initial buyer (a contractor we use) so it was in fact different by several thousand $$$.

Daniel Dietz · Answer

Aaron,

It sounds like you are saying even though we have not been directly involved yet. (the third party could keep the property or sell to someone else at this point, but I dont expect that) that this is still self dealing? If so, would that change if the third party actually closed the deal, took possession, and then sold to us at another closing?

Thanks, Dan Dietz

Daniel Dietz · Answer

We are in a similar situation right now and am hoping we are working around it right. What we did, since we knew about the 'no self dealing rule', AND not yet having our IRA's rolled into the SDIRAs, OR having the LLC set up, and we were wanting to 'buy' this property at an auction is  this;

We had a non-disqualified third party do the bidding, sign the offer, and provide the earnest money check. The realtor knew our plan and approved. At the closing, we will get the property 'assigned' to use and all paperwork will be done in the name of the LLC that is by that point funded with the newly rolled SDIRA's (3 in our case).

Note, all 3 of us have a LONG and excellent business history in our small town and with this realtor, which is probably a large part of the reason they were not suspicious of this working.

Dan Dietz

Ned Carey · Answer

An earnest money deposit may not be required in your state to form a legally binding contract. The promise to buy and the promise to sell should be sufficient consideration. Even if it is not your seller may not understand that and fell obligated to the contract anyway. The EMD could always be specified to be conveyed a t a later date but before the closing.

As I see it, there are lots of creative ways around this, ie; the IRA buys but doesn't yet have the money.  However as Jon H says, assigning the contract is an absolutely clear NO NO.   Good luck - Ned

Bill Gulley · Answer

Good point Rick, you could give the seller an earnest moeny note to be returned when funds come in, just to make them feel better.

Jon, great pointing out the prohibition in doing any business from any side of that coin. :)

Can I assign a contract to my self-directed IRA?

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