What would you do - SDIRA or Distribution ??

Question

I have a small retirement IRA account from a previous employer (a little over 20K).

I would like to use this money to purchase an investment property along with some savings that I have.

I have been looking to put the money into a self-directed IRA so I can use the money without having to pay a Distribution Fee (the penalty for using the regular IRA funds)

From what I have been seeing if I go with a checkbook control SDIRA I must pay to open an LLC (approx $800) plus the yearly fee (approx $300)

If I go with a custodian directed IRA every transaction (withdrawal, deposit, etc.) will incur a fee. Plus I will have a yearly fee (approx. $300)

With all the fees would it just be better to pay Distribution fee (approx 10% = $2k) and the taxes it will incur?? and im done.

Or is having a SDIRA still worth it??

Thanks!!

John Underwood · Answer

I converted an old employer 401k to a self directed ROTH check book control IRA. I paid the tax.

I started buying tan liens, some turned into houses that I rented.

I never contributed a penny more or borrowed any money. It is now worth around 300k and growing quickly.

Dmitriy Fomichenko · Answer

@Jorge Suarez

You can't use your personal savings in connection with your IRA - that would be prohibited transaction.

You could partner with non-disqualified person, but in this case you are unlikely to find financing so it would have to be a cash deal.

If you take a distribution then it's your personal money so you can use conventional financing, but  you are correct - you will owe taxes and penalties.

Dmitriy Fomichenko · Answer

@Jorge Suarez

It looks that you don't have enough to purchase property in using self-directed IRA. Even if you used financing (must be non-recourse) you will need at least 30% down plus 10-15% in reserves. You will need a larger balance to make this work for you in an IRA.

Jorge Suarez · Answer

@Dmitriy Fomichenko Thank you for your reply.

I had read on https://www.theentrustgroup.co... that for the initial purchase I could partner with a disqualified person or use my own personal savings. (which is the plan)

and if I am understanding you correctly If financing I would have to use a non-recourse loan.

Assuming the property is $100K I would have to have $30K plus $10K - $15K in reserves for the non recourse loan.

Or take it out of an IRA pay the distribution and taxes and I can use a conventional loan.

Am I correct??

What would you do - SDIRA or Distribution ??

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