Self Directed IRA questions

20 Replies

I am in the process of transferring my 401K funds to a SDIRA. I understand I can transfer my funds to a SDIRA. Do you know someone locally who I can get in touch? I am looking to use the cash to purchase my first property but I have questions about the process.

Thank you


@Jose Hooker

With self directed IRA plan, quality of service and the correct plan offerings for your needs will be more important than geography in selecting a provider.

There are Self-Directed IRA Custodians that can hold accounts and process that account's investment into non-traditional assets such as real estate. In that model, they will hold the funds and process all transactions, sign all documents, receive all income, etc. on behalf of your IRA. You tell them what to do and they do it. This can be cumbersome for running a more active or diverse portfolio such as with rental property.

There are about 3-4 dozen such firms across the country, including some in Florida.  Most will have the word Trust in their name since they are generally depository trust institutions.

Alternately, you can look into a Checkbook IRA LLC or Solo 401k plan. These plans will put you directly in control of the funds and you can operate out of a bank account of your choosing under the umbrella of the plan. These models eliminate the processing layer of the custodian, and the paperwork, delays and fees associated with that. There are a handful of firms that provide these options, and a pretty wide range of quality of service/fees. There is a good bit of information here on BP on and by such firms.


Thank you very much for providing such a great information I really appreciate it. I watched some YouTube videos about this subject and I like the option in which I am in total control managing the funds. One follow up question, let's pretend I have $20M in my 401K account. At this point, I will owe the government about $4M. If I transfer my funds to the SDIRA and not pay my taxes now, then when do I have to pay the government its share?

José Hooker

@Jose Hooker

you don't owe government any taxes until you take the distribution. When you do take the distribution from your IRA - you will pay taxes only on the amount of distribution, not on the entire IRA.

Please keep in mind that at age 70 1/2 you have to take Required Minimum Distribution (RMD). So they force you to take some of the money out. You also have an option of converting to a Roth IRA at some point, which does not have RMD requirements.


Thank you for the explanation. Also, let's say I found a trust, open an account and transfer the funds in my 401K. Then I go purchase my first deal. Is the deed of the property goes into the SDIRA account to show that I used the funds to purchase real estate?

José Hooker

@Jose Hooker

Titling will depend on what kind of plan you put in place. It could be XYZ Trust Co, Custodian FBO: Jose Hooker IRA, or it could be via a LLC that is owned by such an IRA. Regardless, the property is properly titled under the plan. All income for the purchase and maintenance of the property would need to come from the plan, and all income generated will go back to the plan.

It is really no different than having an IRA and investing in a more conventional asset such as a stock, fund, CD, REIT, etc. Only the plan configuration and paperwork methodologies are different, due to the fact that real estate is not traded on public exchanges.

@Jose Hooker

Are your talking about investing in a land trust via your self-directed IRA?

Hi Mark,

Thank you for being interested in helping me. I am interested in taking my 401K funds and used them for a down payment when purchasing my first rental. The idea is to use 100% of the funds in my retirement and avoid paying penalties and taxes.

I hope this clarifies your doubt.



Thank you for your replay. Again, I appreciate your help. I am interested in the creating a LLC and having the LLC owning the properties purchased with the funds. Question, at what point do I have to pay the taxes? Is when I get to retirement age and start withdrawing money from the fund?

Thank you


@Jose Hooker

Income to an IRA is generally tax-deferred (unless it is a Roth IRA). What this means is that the income is not taxed as it is earned, but is taxed when you draw it out of the IRA in the form of distributions. Investing in real estate does not change that basic formula.

The use of a mortgage, will, however create a separate tax liability at the current time for the IRA itself. The tax is known as UDFI and is discussed at length here on BP. The basic concept is that if an IRA is using non-IRA funds as leverage, there is a small tax that applies to the percentage of the gains derived from those borrowed non-IRA funds. It is a concept you will want to learn more about, but the bottom line is that your IRA may be used as a down payment and borrow money, which should result in a higher cash-on-cash return for your IRA dollars.

Thank you very much. It is getting more confusing. However, this is very interesting. Let's say, I start my business and in ten years ( I will be 48) I want to retire and withdraw all the funds from the IRA. At that point, do I will have to pay all the taxes and penalties as a regular IRA?

@Jose Hooker

If you take a distribution from an IRA prior to age 59 1/2, then there is a 10% penalty for early distribution, in addition to any federal or state income tax on the money. Typically speaking, it is a poor idea to withdraw all of an IRA at once, as this will likely put you in a high income bracket. What an IRA is intended to accomplish is to allow you to build a large savings over time, since it is not diminished by taxes. You then draw that savings out over time in your retirement years.

A phrase you use indicates to me you are not 100% clear on the concept. An IRA is not "your business", and a self-directed IRA is not a means for you to invest in real estate and have access to the IRA funds to do so. Rather, it is a way for you to diversify your tax-sheltered retirement savings and invest in real estate. If you can generate greater long term wealth for yourself by doing so, then you have come out ahead.

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I currently have a home that I purchased outwrite using my self directed IRA. The home is currently owned by my IRA LLC. Once I turn 59.5, can I transfer the house deed into my name directly since I'd be retirement age? Thank you!

@Robin Cornacchio

Yes. You could distribute the property to yourself from the IRA in-kind.

You would have the property appraised to set the value.  That value would then be the taxable amount of the distribution.

Speak with your CPA about the significant tax implications of such a move.

Speak with your IRA custodian about the mechanics of documenting the transaction.

I have been reading up on this self directed IRA for some time. I understand the general concept of forming the IRA LLC and the funds needs to be dispersed to the IRA fund. I am a bit confused about how a person can take out from their IRA to buy a business and they do not have to pay a penalty but if you buy a apartment building you can not manage or operate the business hands on.

I have a scenario- What if I create a "property management company" and purchase an apartment building of 5 units or more. Can I buy this business using my IRA without paying penalties and can I use one of the apartments as my office to run my property management business from?

Basically I am very hands on with my rental properties. It is discouraging to be sitting on a large sum of money in my IRA investing in stocks that I do not trust but I can not use it to invest in rental properties that I love and really enjoy remodeling and repairing myself. How can I get around this issue so I can make my IRA money work in a rental business that I have a passion for?

@Brian Johnson

What you are looking for does not exist.

You can use an IRA/Solo 401(k) to invest passively in assets such as real estate. As you note, you get to be a "fund manager" only and are limited to contract and expense handling. You may not be actively involved personally and provide services to your IRA, as that would essentially amount to making un-documented contributions to the IRA and artificially boosting the sheltering value.

An alternate and entirely different structure known as a Rollover as Business Startup (ROBS plan) exists that allows for retirement funds to be utilized to capitalize an active business in which you are hands on engage.  This works well when the business is a providing a commercial service or product, such as running a restaurant or operating a real estate development company building/flipping homes for sale.  It is not a beneficial structure for passive income producing activities such as rental property holdings.

So, the question you ask that so many "hands on" real estate investors have to ask.... Would I rather invest in what I know and accept the restrictions of being arms length, or would I rather send that money to Wall Street and cross my fingers?

Thank you @Brian Eastman for your time too  wright the response.  I thought that I was wishful thinking on this idea.  It is a shame that the system is setup for people to blindly invest in the stock market.  Like sheep's to Slater.  Fortunately economic is my hobby and I do have a elevated understanding of stocks.  I just prefer a tangible asset over paper.  

I wish I could tap into my IRA to use the resources. Do you know of any IRA holding companies that I can borrow from myself. Like how some 401k funds allow you to borrow from?

@Brian Johnson

IRA plans do not allow for a personal loan provision. That is only available from qualified employer plans like 401k's.

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