Investor · Scottsdale, AZ · Member since 2016 · 6 posts · 4 votes
Hi everyone, my wife recently reached the dream of being able to retire at 49 thanks to rental properties. Some of her properties are in her self directed IRA. A provision in the IRS code known as 72T allows one to receive distributions prior to age 59 1/2. There is a calculation that takes place and usually involves market based investments. I am wondering if anyone out there has knowledge/experience of examining these assessments/calculations for rental properties? Our hope is to simply be able to collect the rents as income, which is approximately 5% of the overall value of her investments. Thank you!!!!!
This is definitely a scenario to discuss with your licensed tax advisor. A 72-T exemption known as a Substantially Equal Periodic Payment (SEPP) is a pretty rigid agreement.
I don't think you will be able to accomplish the rents-only goal. The way the SEPP works is that you take the current account value and set a schedule of withdrawals to drain the account over a set period of time.
If you find a way to make the numbers work, you might want to setup a specific and separate IRA for that purpose. You really do not want to add to an IRA that has a SEPP in place.
An IRA holding real estate is treated no differently than an IRA holding other investments when it comes to this program - other than you needing to manage your liquidity requirements a bit differently to meet the distribution schedule.
Flipper · Fort Myers, FL · Member since 2017 · 1 post · 0 votes
2y
I have an IRA/SDIRA and stocks/bonds increase in value, the balance goes up each year (minus the mandatory SEPP payments) correct? So, what would be the difference of depositing rent payments monthly to the SDIRA (and taking my SEPP payment monthly or annually)? Perhaps the question was posed in a way that the answer had to be "no that won't work", had he posed it like the above, "Can I have SEPP payments setup while collecting rent that goes back into the SDIRA and can I continue to sell stocks and purchase additional rentals while taking SEPP?"
Investor · Pflugerville, TX · Member since 2014 · 152 posts · 94 votes
1y
My understanding of the 72T/SEPP calculation is that it is based on the total value of your portfolio and then has some generic assumptions to extrapolate over time so that you do not take too much of your portfolio out too early. The calculated amount is the maximum that they will allow you to take out. You can also take out less than the maximum amount which is what I plan on doing with my rental income in my IRA. The thought being I don't want to take the all the theoretical rent income out in case the rents/expenses leave you shorter than expected. You do have to take that amount out no matter what for the time period specified in the agreement but you can also take multiple SEPP distributions. For example, you could start with $2k/month and if you decide you want to take more out later take a second one for another $1k/month. But you can never take out less, check with your specific IRA about this to see what their rules are.