My LLC is in a JV on a build (LLC owns the lot) Provided this goes well, my partnership will expanded to include a build on my next lot (owned by my IRA). I want to flow money into my IRA, but want to flow money into my pocket so I can gain financial independence here and now.
The JV is working on a 50/50 split on construction lending.
What is the best bet for the future 3 way partnership with my SD IRA (if any)?
Does it have to be profit sharing 1/3 each (Ira gets approved for loan)?
Or can you my LLC cover the entire loan and my IRA recoup its percentage of the profit (which if it only purchases land, should be around 8-10%).
Is best/legal/safest to split evenly? My partner is open to whatever really, it is mostly about leveraging my capital via my IRA and legally putting as much money into my pocket.
You and your LLC are disqualified persons to your IRA. Any arrangement that creates transactions between or produces direct or indirect benefit between a plan and a disqualified person results in severe tax penalties.
The goals you are stating are contrary to this set of rules as outlined in IRC Section 4975.
Your self-directed IRA is a means for you to have more control over your tax-sheltered retirement savings. It is not a means for you to add capital to your own personal enterprises.
Ryan, what you propose is not possible with the land owned by the IRA. What you can do is take the property out of an IRA via "in-kind" distribution, then you are free to do whatever you wish.
@Ryan Sweeney Just remember that if you do an "in-kind" distribution you will be taxed as ordinary income PLUS you will pay a 10% penalty if you aren't 59 1/2 when you take the distribution. That adds up to pretty expensive real estate if you are doing this in Austin.....
Thank you Brian.
I thought have read that you could partner with your LLC On initial purchase, it was when it came to the project you arent allowed benefit.
So could my IRA own say 20% and my LLC own 80% and then my LLC hires my partner instead of JVing?
I am pretty confident your answer will be NO, but still just trying to wrap my head around this with all the stuff I have read and understanding how and when it is ok to partner.
If your IRA and LLC buy the property together at whatever split, that is ok. But you said that the ira already owns the land. Transaction is over for partnering.
Your ira can partner with your buddy who is developing the land. That way the profits will go to your ira and you will have more money there to invest. But you personally can not benefit from the transaction, your ira will.
@Ryan Sweeney "The Internet" mentions such JVs between a plan and a disqualified person. They would need to be at inception, which your proposed transaction is not since your IRA already owns the land. Even then, there are 10 more ways such a deal can go wrong than right, and the penalties for wrong are catastrophic. We do not recommend such JV's.
Makes sense. Thank you for your input.