Note Funds and SDIRAs

11 Replies

Thoughts on this….

This article was sent to me from my CPA after I asked a question about my current note investing and investments I am seeking to get in on, which includes anything from individual purchases with a JV to accredited investing with a fund company.


https://www.cnbc.com/2021/09/1...

My SDIRA also sent me this email regarding the proposed tax law on using IRAs for these investments.

How does the proposed legislation affect me?

The proposed legislation would prohibit IRAs from holding privately-placed equity and debt securities and other investments that require the IRA owner to meet certain minimum financial, educational or licensing requirements. For example, the legislation would prohibit IRAs from holding unregistered investments that are offered to accredited investors, like equity or debt investments in small businesses or investments in private funds. You may very well hold investments in your IRA today that would be prohibited by the proposed legislation.

The bill would also prohibit IRA owners from investing in (1) non-publicly traded entities in which the IRA owner and related entities (including the IRA itself) own more than a 10% interest or (2) any entity in which the IRA owner is an officer or director, regardless of ownership percentage. By way of example, single-member limited liability companies or any investment in an entity in which an individual is a director or officer could no longer be held in an IRA.

IRAs holding any of the above investments would lose all of the tax advantages previously available to the IRA.

@Daria B.

#1 - Do not panic and alter existing investments.  There will be 2 years to make adjustments if this becomes law.

#2 - ACT NOW.  TODAY.  To stop this from becoming law.  

See the following article for resources to help inform legislators why these proposals need to be eliminated from the budget bill.


Self-Directed IRAs at Risk - Your Advocacy Is Needed

I'm hoping that this gets dropped from the final version. I wonder what the purpose of this is? Is it a straight play to cut out the competition from private equity so everything goes to the huge investment firms that are left? Or is it an attempt to protect IRA owners from themselves by preventing them from taking larger "risks" on private equity? An attempt to raise more tax revenue?

Whatever the reason, this new provision stinks!

Originally posted by @Brian Eastman :

@Daria B.

#1 - Do not panic and alter existing investments.  There will be 2 years to make adjustments if this becomes law.

#2 - ACT NOW.  TODAY.  To stop this from becoming law.  

See the following article for resources to help inform legislators why these proposals need to be eliminated from the budget bill.


Self-Directed IRAs at Risk - Your Advocacy Is Needed

#1 - agreed but those who don’t invest in stock and have turned to RE now face an upset in their portfolio.

#2 - I hope every IRA investor reaches out and writes a letter to address this. likely not going to be thought out and still won't affect their target, which means those below or on the fringe will be cut out from investing.

Originally posted by @Andy Mirza :

I'm hoping that this gets dropped from the final version. I wonder what the purpose of this is? Is it a straight play to cut out the competition from private equity so everything goes to the huge investment firms that are left? Or is it an attempt to protect IRA owners from themselves by preventing them from taking larger "risks" on private equity? An attempt to raise more tax revenue?

Whatever the reason, this new provision stinks!

 I get that some investors need that protection. When I got into note investing it was education, education, education and not everyone follows that they just jump in without understanding. So I get the trying to protect those investors but one size does not fit all.


I read through a few articles on this proposed law since posting this and just don’t see this as a benefit for those of us who finally got into this space and have begun building up our portfolios.

Contact Both of Your Senators by phone, e-mail and/or mail If you don’t know your Senators (contact both), you can look them up at the link below and then go to their office’s specific page to get their e-mail, phone, and mailing address.
https://www.senate.gov/senators/senators-contact.htm
Once you select your state your two senators should pop-up and there will be a hyperlink called Contact next to each Senator that will take you to their office’s page to make contact by e-mail, web-form, or phone.
Remember, the two problematic sections of the House Tax Bill are sections 138312 and 138314.

What Should I tell my House Representative or my Senator – Example email?
Consider the following outline for your email, letter or phone call. It is critical that you let them know the following.
That you are their constituent in their district (Contacting a Senator from another state or Congressmen/Congresswoman form another district is typically futile). Give your address so they know they represent you (e.g. I’m Sally Jones from Glendale, AZ).
Tell them is a misconception in Congress that self-directed IRAs are only something the wealthy do and that this only hurts the wealthy. It's helpful to be straightforward about who you are and about the size of your account. They need to know that this bill is going to disproportionately hurt IRA savers with IRAs less than $1M.
Here are some examples of how it could directly affect you, but it may help to put it into your own words and situation explaining how you’re not an ultra-wealthy person using their IRA to invest in hedge funds (that’s what they presume).
I’m a working American with a $X IRA just trying to get to an account balance I can retire on. This Bill will effectively kill my ability to grow a retirement account that I can retire and live on.
I’m a pilot, nurse, retired firefighter, realtor, etc. (insert profession or job so Congress doesn’t think this is just CEOs, doctors, lawyers, and wealthy heirs), and I have diligently contributed to my retirement account. I choose to invest some of my IRA into real estate, small businesses, start-ups, and crowdfunding offerings. These provisions will force me to sale my assets prematurely for a loss or will force me to distribute them where I will be subject to taxes and penalties.
Please oppose Sections 138312 and 138314 as they will cause drastic tax consequences for my IRA, and they will take away future investment choices that are important to growing my account to an amount I can retire on.
If you think the $10M cap is reasonable, say that so Congress doesn’t presume you’re an ultra-rich person with a $10M plus IRA (like some in Congress presume anyone opposing this bill is). We’re not opposing the $10M cap in our efforts as it effects very few account holders who self-direct.
Tell them thank you for their service. Don’t attack them or be mean or rude. Be smart in your comments. Remember, a kind word will go a lot farther than ranting and raving.

@Jay Hinrichs

Yep. This is the Peter Thiel making $5B they want to avoid but it was thrown in there is what it appears. While I believe this $3.5T bill has no chance of passing, it will get scaled down and the question is when it does, will this language get removed or edited? Most people look at the price tag of these bills and that is where they negotiate and keep stuff like this as the low hanging fruit. 

I do have to say this will really suck for the real estate industry and be curious its impacts. Where I think it would be felt the most is in lower cost areas like the midwest where there is a significant amount of owner financed loans because banks will not lend and many people use an IRA in a LLC to do this. So if this does pass and the bigger wall street players continue to acquire these properties and complaints come out about inequalities they have no one to blame but themselves.

Originally posted by @Chris Seveney :

@Jay Hinrichs

Yep. This is the Peter Thiel making $5B they want to avoid but it was thrown in there is what it appears. While I believe this $3.5T bill has no chance of passing, it will get scaled down and the question is when it does, will this language get removed or edited? Most people look at the price tag of these bills and that is where they negotiate and keep stuff like this as the low hanging fruit. 

I do have to say this will really suck for the real estate industry and be curious its impacts. Where I think it would be felt the most is in lower cost areas like the midwest where there is a significant amount of owner financed loans because banks will not lend and many people use an IRA in a LLC to do this. So if this does pass and the bigger wall street players continue to acquire these properties and complaints come out about inequalities they have no one to blame but themselves.

Dems have IRA and such as well kind of like falling on their own knives.

While an IRA owned LLC would be prohibited, private money loans held directly by the IRA account would not. I don't see a reduced number of private money loans inside of IRA accounts. 

Originally posted by @Chris Seveney :

Where I think it would be felt the most is in lower cost areas like the midwest where there is a significant amount of owner financed loans because banks will not lend and many people use an IRA in a LLC to do this. So if this does pass and the bigger wall street players continue to acquire these properties and complaints come out about inequalities they have no one to blame but themselves.

@Marco Bario

It would be interesting as private money loans would be allowed but many like to run them through an LLC or trust which is no longer available and their name will be right their on the docs and in public record if recorded

I see people having hesitation to that.