Roth IRA trick from Ron LeGrand

9 Replies

Hi everyone. Im thinking about signing up for a Ron LeGrand teachings. In this specific lesson he teaches how to use your IRA to buy real estate with no money down is this true? I tried looking some things up and google says I can use a backdoor IRA, is this what he's talking about? It's one of the only reasons I'm considering buying the class, so any help would be appreciated.

IMO ira purchased properties are almost always 100% cash as their is a tax on any financing and the financing has to be non-recourse as you arent allowed to guarantee the loan personally. 

ps. No, backdoor ira usually means high income individuals opening an dont qualify because of income limits. Then converting it to a Roth and paying the income taxes all during the same tax year. 

This is what his description says:

Did you know your IRA can buy houses just like you can? Once you learn to do it without money, you simply make your IRA the buyer instead of you so all profits go into your IRA…TAX FREE.

Your CPA and attorney can’t teach you this because they don’t know about it. Why? Because they don’t understand real estate investing Ron’s way.

Trust me when I tell you it will be a long night after hearing about this. You won’t sleep a wink when you hear how you can put your children and grandchildren through college – absolutely FREE.

This simple secret is making TAX-FREE millionaires out of my students all over America.

@Adriea Herndon I've been through Ron's programs. He teaches how to do wholesaling using your self-directed IRA. The "no money down" part is really "low money down", because your IRA must invest in the contract to assign it, so that means the deposit must come from the IRA and the amount depends upon what your IRA custodian considers an appropriate amount to classify the transaction as an investment.

@Adriea Herndon

Here is the other big issue with this "trick", and why real estate gurus should generally be approached with great care whenever they start talking about self-directing IRA and 401(k) funds.

Wholesaling is not a good strategy for IRA funds for two reasons:

1) Wholesaling generally involves a lot of hustle. IRS rules strictly prohibit you from adding value through the provision of goods or services to your IRA. While you can certainly administer investments with activities such as executing contracts, paying expenses and receiving income into the plan, you put your IRA at great risk if you are out doing all the necessary marketing and deal-chasing activities that wholesaling entails.

2) Wholesaling is a dealer activity and therefore subject to taxation on Unrelated Business Taxable Income (UBTI) if conducted on a regular or repeated basis. UBTI can generate tax rates topping out at 37%. Self-directed IRA's are designed to receive passive income such as interest, dividends, rents, etc. They are not designed to be operating businesses and are taxed when they start acting like businesses so as to protect tax-paying businesses from unfair competition.

Of course, these considerations are never mentioned, and there is always the disclaimer; "We are not providing tax or legal advice.  Please consult with licensed counsel."  Most of these gurus know very well they can get folks excited and seeing $$$ and that real diligence typically goes out the window in the frenzied rush to get started yesterday.

@Bill Brandt

What kind of tax and how much do you pay when using financing? Is this a unique tax that's only applicable when using an ira as the down payment?

Iras pay ubit:

UBIT (Unrelated Business Income Tax)is the actual tax that is owed based on the income received within the tax-exempt account or entity

Whatever percent of the income is earned by the debt is taxable. 

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