All Forum Posts by: Doreen Chaisson

As @Phil G. mentioned, there is no transaction between the IRA and the IRA owner, or any disqualified party, so there is no self-dealing. As with many IRS rules are, the rules pertaining to IRA investments are "exclusionary" - meaning, they tell you what you CAN'T do, and by omission, everything else is allowed.

Remember, as the IRA owner, you are the NON-member manager of the single member LLC. You are having no transaction with that LLC, your IRA is. As long as your operating agreement doesn't prohibit additional infusions of capital, your IRA can continue to add additional capital to its LLC.

Additionally, many custodians require single member LLC's to appoint a "special advisor" to review all of the LLC's transactions and be on the look out for prohibited transactions or abusive activities.

We've custodied thousands of IRAs with single member LLCs who have done additional funding and have yet to hear of a case in which this was deemed prohibited or abusive.

If you really want concrete approval, you can write to the IRS or Department Labor, pay the high fee, and ask them to issue you a Private Letter Ruling on the subject.

If it's a single member LLC owned by your IRA, you should be able to transfer additional IRA funds to your SD IRA and then add additional funds to that LLC. If it's family -controlled (LLC is owned by your IRA, yourself, disqualified parties), you cannot.

If you coinvest with yourself, you cannot get a non-recourse loan. A NRL is only possible if the IRA is the sole investor (either directly or via an IRA-owned LLC) OR if it invests with other, non-disqualified parties. Once you combine personal funds, leverage is out of the equation. This is cross-collateralization and is prohibited.

Many of our clients use North American Savings Bank. They have certain requirements about property types (no raw land, no mobile homes, must be income generating), and will expect at least 30 - 40% down and cash reserves in your IRA to cover unexpected expenses. They generally do 3 - 5 year ARMs. If you are only short $10,000 and the property qualifies, I can't see that it would be an issue to get them to work with you.

A couple things to keep in mind:

1. someone suggested you take a loan from your 401(k) to make up the difference. Keep in mind that if you go this route, you and your IRA will be doing a TIC deal, and all expenses and all income related to the property will need to be split based on percentage of ownership between you and your IRA.

2. If you do secure a non-recourse loan, your IRA will then be subject to UBIT tax on the portion of net income tied to the percentage of leverage. Talk with a qualified CPA and have them run the numbers. Given it seems you are only borrowing a small portion, it should not be a deal killer, but you need to be aware of it & know that these tax payments must come from your IRA.

Good to know - I'd like to message privately to introduce you to my company.

Welcome Jon! Does your company provide the administrative/custodial services for Self-Directed IRAs and Solo(k)s, or do you work with established custodians?

This is called reciprocal lending and is a linked transaction to a prohibited transaction. You are using your IRA funds to ultimately gain a personal benefit (as is your friend) - access to cash that is otherwise unavailable sitting in your IRA.

Furthermore - you cannot lend the money to your friend from your IRA, and then have him give you the money personally (outside of his IRA). Again, this is a Prohibited Transaction. Anything that results in direct, implied or even the appearance of personal benefit is prohibited.

As to whether or not your current 401(k)s can be rolled into a new Solo(k), it would depend if you and your wife are still employed by the companies that sponsor the 401(k)s. If you are, you need to check with the company's Plan Administrator to see if you can take what is called an "In Service Distribution".

Also keep in mind that any 'profit sharing' and 'salary deferrals' for your new Solo(k) can only come from the income you earn from the LLC that sponsors the Solo(k). You cannot funnel earnings from any other jobs you may have into the Solo(k).

Keep in mind that when you own an operating company with a Solo(k) or an IRA, 100% of the net income generated by that operating company, after exemptions and deductions, is subject to UBIT tax. A Real Estate Operating Company, set up to buy and flip properties, is considered an operating company. I'd suggest you work with a knowledgeable attorney when structuring your investment and check with the IRS or your own state's taxing authority regarding the threshold at which passive investing status switches to "dealer status", making your LLC an operating company.

@Dmitriy Fomichenko is correct. The only funds you can put into your Solo(k), aside from rollovers from other retirement plans, is 1099 income you earn from the business that holds the plan, and profit sharing funds from that business. Since the property is to be owned personally, outside of both the Solo(k) and the company, any profit from sale of that property is ineligible to be contributed to the Solo(k). Additionally, the Solo(k) personal loan must be repaid within 5 years to the Solo(k), with regular (generally quarterly) and level payments. You need to make sure you'll have the cash flow to meet those loan payments or the entire unpaid balance will be deemed an early distribution, subject to taxes and penalties.

A qualified, regulated Self-Directed IRA or Solo(k) custodian will be sure its clients are fully aware of all the IRS and DOL regulations regarding investing in alternative assets. Many "custodians" are actually "facilitators" who charge higher fees and will actually set up the IRA-owned LLC for the client, and may also have some management role in it, preparing tax returns and so forth. They sometimes sub out the custodial or administrative role to an outside bank or other financial institutions - and work those fees into their own.

A truly Self-Directed Custodian is passive and has no involvement in the IRA-owned assets. It does not give tax, legal or investment advice, nor assist with the structuring of any IRA owned investment vehicle.

For IRA-owned single member LLCs, sometimes referred to as "checkbook control" IRAs, the more premier custodians will require that the IRA owner appoint a special advisor - a licensed CPA or attorney - who is responsible for reviewing every transaction of the LLC to ensure it's not running afoul of any self-dealing or other prohibited transactions.

Before deciding on any investment type or any custodian/administrator/facilitator, it's advisable to do your due diligence as running afoul of the IRS or DOL laws will result in loss of tax advantaged status of your IRA or Solo(k), as well has taxes and penalties.