All Forum Posts by: Alan Johnson

@Account Closed Do you qualify (e.g., have a side business) for a solo 401(k)? The proposed restriction on SDIRA LLCs does not apply to solo 401(k)s. You could therefore rollover the LLC holdings into your solo 401(k) and avoid the need to liquidate. See this chart prepared by the IRS to learn more about the portability of various retirement accounts. 

@Matt Devincenzo There is nothing that would prohibit your IRA from direct ownership of MFR property. However, if the property was purchased using a "Checkbook IRA" (single-member LLC with IRA as the member and you as the manager) it would no longer be able to be held commencing December 31, 2023.

Also, if your IRA invested in the MFR via a 506(c) syndication, it would also no longer be able to be held.

You might also check out my other recent BP posts on this topic.

Hope this helps.

@Taylor L. The ease with which email can be deleted is the reason why all communications with representatives should also be submitted on paper.  Yes, this means printing a document, signing it by hand, addressing an envelope, buying a stamp, and taking it to the post office for mailing.  This is a lot of work and most people won't bother.  Which is tantamount to acknowledging that the issue isn't really that important to them.

Also, put an action item in the communication to try to extend the engagement with the staffer.  Something like "Please let me know your views on these proposed changes, and why they are in the nation's best interest."  This allows you to keep sending follow-up emails every few days asking why the representative hasn't gotten back to you.  When they send you a generic "the representative is deeply concerned about (topic)" email, send them another one asking why they are avoiding a direct answer to your question.

The Animal Welfare Institute has an excellent post on How to Communicate Effectively with Legislators that may give readers additional ideas.

Also, sorry about my 'dark alley' comment. Having worked for SDIRA custodians in the past, I've seen far too many "do this legally" workarounds to IRA regulations that end up causing problems for the account holder. The point I was trying to make is that I expect to see "grow your IRA to hundreds of millions legally!" adverts should the revisions be enacted.

@Taylor L. Yes, this would not apply to investors in 506(b) syndications (at least at the moment; who knows what may come down the road). So if you are deemed knowledgeable (i.e., accredited), you cannot make the investment in a 506(c) with your IRA. But you can invest in a 506(b) along with other IRA investors that may lack the knowledge to perform adequate due diligence.

To me, this is starting to look like black market investing for your retirement. You'll have to go underground or down back alleys to find syndication opportunities for your IRA because of the advertising prohibitions (and funding/number of allowable investor limitations) that come with 506(b) exemptions.

But, please, everyone.  Rather than spending 3 minutes writing comments here, use the 3 minutes instead to comment to your representatives.  Make it simple in language they can understand.  Namely, 138312 and 138314 if enacted will jeopardize your ability to fund your retirement.

I visit BP infrequently and am surprised that nothing seems to have been posted about changes the House Ways and Means Committee are introducing to help reconcile the $3.5 trillion spending bill. Two sections in particular (Sec. 138312 and 138314), if enacted into legislation, will have significant and, for some, devastating impact on their IRA accounts.

Sec. 138312 prohibits an IRA from investing in a private offering that requires accreditation.

Sec. 138314 prohibits an IRA from investing in an entity in which the account holder is an officer. This effectively prohibits checkbook IRAs.

If such investments are held beyond December 31, 2023, then the entire IRA account will be deemed to have been distributed.

See https://waysandmeans.house.gov..., then follow the link at the bottom of the page for specific language for each section above.

Many SDIRA custodians are encouraging their clients to write to their representatives on this issue.  Some offer assistance in the way of example letters and templates.

At the least, I suggest that those of you that would be impacted by these changes contact your custodian to see what actions, if any, they are taking and recommending.

The LTV of 75% seems high to me, particularly at current real estate valuations. In my experience, most non-recourse lenders require LTV be no more than about 60-65%. If you can make that work, send me a PM and I can provide you with a list of non-recourse lenders that are familiar with self-directed IRA ownership.

With the revelation by ProPublica in June that Peter Thiel's Roth IRA is valued at a staggering $5 billion, the news media is widely reporting that Congress will be considering changes to IRAs that will curtail such hyper-growth of tax free money going forward.

In explaining how Thiel's IRA could have grown to this size from a starting value of less than $2,000 in 1999, ProPublica reported that Thiel had utilized a self-directed IRA to purchase stock in PayPal at startup. They further hinted that Thiel may have purchased the stock at a price well below fair market value at the time. If so, this might well have been regarded by the IRS as a self-dealing prohibited transaction, thus allowing them to disqualify Thiel's IRA and collect a considerable amount of tax revenue. But ProPublica also reported that the IRS had audited Thiel in 2011 and determined that no additional taxes were due.

This dramatically illustrates the difficulty in determining a fair market value for start-up company stock and likely explains the reason why Senator Ben Cardin (D - Maryland) is “considering reforms, such as banning the use of IRAs to purchase nonpublic investments”.

If enacted, this axe-rather-than-scalpel approach would mean the end of self-directed IRAs.

Yet the vast majority of self-directed IRA investments, while illiquid, are relatively easy to value on an annual basis as required by the IRS. This includes direct real estate ownership, tax liens, secured and unsecured notes, syndications, private REITs, private equity funds, and precious metals (to name a few).

In my view, therefore, banning self-directed IRAs from all nonpublic investments is both unwarranted and (hopefully) unlikely to succeed.

Nonetheless, a prudent investor should monitor the progress of IRA reform in Congress and factor the likelihood of changing regulations into his or her long term investing strategy.

Good luck to us all...

I'm late to this thread, but I note that no one has mentioned the IRA aspect of this. It looks like you established a "checkbook IRA" for the purpose of making the investment. This means the IRA account is the owner of the LLC that owns the property. You are a non-compensated manager of the LLC.

You want to be very careful about separating your personal involvement and expenses from those that should be paid by the LLC.

I suggest that you also speak with both the custodian you are using for the self-directed IRA as well as the service provider you used to establish the LLC to get their input on how to proceed when your IRA account is subject to legal action.

Good luck!

There are more than 40 custodians that will allow you to hold private investments in your IRA account. But not all will hold every type of investment, and their fees vary significantly.

Use this free and anonymous tool to start your search for the most cost-effective SDIRA custodian.

Or use it to compare the fees you are paying your current custodian with the fees charged by other custodians.

@Roger Runch  What I picked up on in your initial post was your use of the phrase "our self directed IRA."  Did you mean "IRAs" (plural)?