All Forum Posts by: Ari Newman

got it, thanks.

@Brian Eastman Thanks for your reply. If the GP owned a greater than 50% interest in the entity, would he then be disqualified to me personally and the other IRA accounts? I'm trying to understand some of the language in IRC 4975(e)(2)

My 401K invested in a PPM a few months ago.  It owns a small percentage (6%) of an entity that owns a commercial property.  I'm not sure what percentage of ownership the GPs have but it's less than 50%.  

The GPs have started funding on another project in which I'd like to participate. I'm under the assumption that my other IRAs cannot invest in this project because the GPs are now disqualified to me personally or to my other IRAs. Is that correct or is it based on their percentage of ownership in the entity? So the other question is...can my Wife's IRA invest in the new project or are the GPs also disqualified to her IRA as she is my spouse?

thanks for your thoughts and feedback.

Great News! The IRA & 401k provisions have been dropped from the bill.

https://www.asppa.org/news/bro...

For a fix&flip, yes, you are correct.  This how a typical private lender might loan on your deal:

$100K ARV

$50K PP (let's assume seller is playing closing costs)

Lender will only loan $65K. He will ask you to bring $5-$15K to the closing table so you have skin in the game. Then a draw schedule will be created based on project completion. So perhaps he'd advance you $5000 after you put on a new roof and then $10K after the rehab is complete. The details might vary, but this is how most private money lenders operate. An institutional lender would work on a similar draw schedule but might lend at a higher LTV or change the draw structure.

All that being said...don't get too bogged down on the details yet.  Most importantly, find a deal and bring it to the right people.  The knowledge, funds etc. will find you if you hold the opportunity in your hand.

David, most HMLs that I know will only loan on 65% of ARV. If you don't have the funds, your best bet is to partner up with someone who has, cash, credit or the team to rehab. If you're wiling to give up a part of the deal, you'll be likely to find someone to partner with you. Even if you have no money, you can still take a part of the deal IF you bring the opportunity to someone who has the knowledge or other parts needed to make it happen.

here's the language from the proposed bill (pg. 693)

17 SEC. 138314. PROHIBITION OF INVESTMENT OF IRA ASSETS
18 IN ENTITIES IN WHICH THE OWNER HAS A
19 SUBSTANTIAL INTEREST.
20 (a) IN GENERAL.—Subsection (a) of section 408, as
21 amended by the preceding provisions of this Act, is amend
22 ed by adding at the end the following new paragraph:
23 ‘‘(8) No part of the trust funds will be invested
24 in a corporation, partnership or other unincor
25 porated enterprise, or trust or estate if—
Pg. 694
1 ‘‘(A) in the case of an entity with respect
2 to which interests described in clause (i), (ii), or
3 (iii) are not readily tradable on an securities
4 market, 10 percent or more of—
5 ‘‘(i) the combined voting power of all
6 classes of stock entitled to vote or the total
7 value of shares of all classes of stock of
8 such corporation,
9 ‘‘(ii) the capital interest or profits in
10 terest of such partnership or enterprise, or
11 ‘‘(iii) the beneficial interest of such
12 trust or estate,
13 is owned (directly or indirectly) or held by the
14 individual on whose behalf the trust is main
15 tained, or
16 ‘‘(B) the individual on whose behalf the
17 trust is maintained is an officer or director (or
18 an individual having powers or responsibilities
19 similar to officers or directors) of such corpora
20 tion, partnership, or other unincorporated en
21 terprise.
22 For purposes of subparagraph (A), the constructive
23 ownership rules of paragraphs (4) and (5) of section
24 4975(e) shall apply, and any asset or interest held
Page 695
1 by the trust shall be treated as held by the indi
2 vidual described in such subparagraph.’’.

@John Underwood These are my thoughts and commentary based on the proposals in the tax bill. Feel free to correct me where I’m mistaken and challenge me where you don’t agree. If these proposals don’t affect you personally (yet), they will have a great impact on someone you know, someone you partner with or the future you that hasn’t been realized yet.
A quick recap on the proposals in the bill:

• Banning your IRA from investing in most Private Placements, Crypto arrangements, many private deals.

o Many IRA's are allowed to participate in investments that are only opened to "Accredited Investors" , and with the new law that is put to an end.
o The kicker is that, you only have 2 YEARS to unwind any deals that your IRA has already invested in or the entire account becomes taxable and you’ve lost all the benefits of having an IRA.
o You might need to sell your existing positions (at a DEEP discount) to get out of a deal before time runs out.

• Banning ownership of your IRA of more then 10% of ANYTHING
o If you wanted to own a rental house in your IRA, only the IRA itself could own it; you wouldn't be able to use the statutory protection of an LLC.
o No more use of Land Trust or PPT
o No more Checkbook IRAs
o No more Joint Ventures in which your IRA owns 10% of a deal or an entity

• A proposed limit on Roth Conversion
o Only Pre-Tax traditional accounts may be converted to a Roth IRA
o For you business owners, this will effectively mean that only your Employee Elective deferrals ($19,500 in 2021) and Pre-Tax Employer matching will be eligible for Roth Conversions.

• Forced Required Minimum Distributions on Retirement Plans Exceeding $10M
o If your “defined contribution” plans (IRAs, 401Ks, etc) exceed $10M (combined) in balance, you will be required to take an RMD (taxable event) on the excess. This would only apply to individuals whose income exceeds $400K (filing single) or $450K (filing jointly)
o My account balance is nowhere near this now; why are we all investing? Is a $10M total on our retirement account balances an obtainable goal for a savvy investor with the ability to choose to participate in great deals?
o What will $1 buy you when you retire? $10M might seem like a lot of money now, but it 20, 30 or 50 years??

For those of you who haven't already heard the news, there is SDIRA-Killing Legislation in the House Tax Bill. Tax Attorney/Investor John Hyre, has put together a website that describes the impact of this bill on all of us. Please take action: Go to handsoffmyira DOT com to see how you can fight this awful law. Please spread the word about the website, far & wide. More than once, people need to be reminded.

Ari

@josh. Please reach out to Aaron Levi who's is an agent/investor @ KW Decatur.  You can Google him or DM me for his info since the forum filters block contact info that's posted.