All Forum Posts by: Doreen Chaisson

Additionally, taking your personal use out of the equation, if your Roth IRA purchases an investment property, using money down from the IRA and securing a non-recourse loan for the balance, your IRA will be subject to at tax called Unrelated Business Income Tax (UBIT). Basically whenever you use leverage to make an IRA investment, the percentage of the net income attributable to the financing is subject to this tax. If your IRA puts 60% down, and finances the other 40%, roughly 40% of the net income, after deductions, will be subject to this tax.

The only way it's tax-free is if your Roth has enough money to purchase the property outright, as well as to pay for any property taxes, repairs, insurance, etc. In this scenario, rental income flows back to your Roth IRA, and then is untaxed income when taken as a distribution in retirement.

You cannot make personal use of an IRA-owned property. This is a clear prohibited transaction.

This is a good question for your financial advisor or CPA, who is familiar with your entire portfolio, complete savings picture & other retirement plans, etc.  

A regulated Self-Directed IRA custodian cannot give tax, legal or investment advice, nor sell investment products. If you are working with a company that is doing this, they are most likely an unregulated facilitator, asset sponsor, or some other kind of financial advisory service, and not a custodian.

@Jennifer Ceren tapp - my apologies for the delayed response.  I didn't see the notification that you'd responded!

Generally if you google the name of the custodian + "sanctions" or "SEC" (Securities and Exchange Commission) you'll see if they've come under fire for anything.  You might want to check BBB listings too - are they accredited, what is their rating, etc.

Generally an older, more established custodian with thousands of accounts and many millions if not billions of alt assets under management will be a more stable company, more familiar with the IRS rules and regulations regarding Self-Directed IRA investing do's and don'ts. A custodian with a single focus on alternative assets will have systems specifically built to handle alternative asset investing, and the professional expertise in place to educate their clients and protect the tax deferred status of their IRA account.

Generally, regulated IRA custodians answer to the IRS and in many cases, a state banking commission as well. Many are structured as banks, but not all. (FDIC is Federal Depositer's Insurance - it's what protects cash in bank accounts and should be offered by all Self Directed IRA custodians for any uninvested cash in IRA accounts)

Hope this helps!

A financial advisor ought to be able to help you with this type of issue. 

If you are currently still employed by the company sponsoring your 401(k), you'll need to check with your plan administrator to see if your plan allows for in-service distributions, if you plan to roll the money over to a new Solo(k).

Best bet would be to meet with a knowledgeable CPA or attorney, familiar with IRS laws as they pertain to Solo(k) assets.  My company is an administrator and custodian for both Solo(k)s and Self-Directed IRAs.  We work closely with our clients over the lifetime of their investment to ensure the accounts maintain their tax-deferred status.  Your Solo(k) will still need an administrator, and they may have certain requirements regarding whether a custodian is needed or not.

There are many different companies to choose from when deciding which IRA provider will help you invest your retirement funds into real estate. What often gets overlooked is the type of company you are choosing. IRA /Solo(k) providers can be put into three separate categories: Custodians, Administrators, and Facilitators.

Custodians are the first type of company, and are usually the most common. They're either a bank, credit union, or non-bank custodian approved by the IRS (usually a broker dealer who obtains IRA approval). Custodians are permitted to custody assets held in an IRA under IRC Section 408. They're also subject to strict regulatory oversight at a State or Federal level. Custodians tend to take a more conservative approach when reviewing alternative assets for investment, as they want to avoid the custody of any assets that may be involved in prohibited transactions. Alternative Asset custodians cannot give any tax, legal or investment advice, cannot assist with the structure of an investment, and cannot endorse, promote or align with specific investment sponsors.

Administrators are the next type of company. Essentially anyone can be an administrator, and their main function is to perform administrative functions only. Because of this, they also need to have an identified custodian for the self-directed IRA named in the account disclosure documents. Administrators are only subject to regulation if required due to profession (CPA or attorney), not for role as administrator. This allows administrators to be much more liberal in accepting assets and allows the ability to align with investment sponsors. Review fee schedules carefully – there may be separate charges for whatever 3rd party custodian they are using.

The third company type is a Facilitator. They educate investors on the process of self-directed investing or assist in setting up single-member LLCs for either "check-book control" or to purchase a franchise or ROBS (Roll-Over Business Startup). They may also provide administrative services for the LLC. Like Administrators, Facilitators must have an identified custodian for the self-directed IRA, but are only subject to oversight on a professional level and are not regulated. As a result, they are much more liberal in accepting assets and can align with investment sponsors, something normally avoided by regulated custodians and administrators. Because they answer to no regulatory body, facilitators may not be as aware or adept at alerting clients about prohibited transactions. Again, review fee schedules carefully – there may be separate charges for whatever 3rd party custodian and/or administrator they are using.

So when you're looking for someone who offers a self-directed IRA, make sure you know the type of company you're dealing with. This will help when determining which company best fits your investment scenario

A few issues here:  First, a micro business may qualify you to set up a Solo(k), but keep in mind salary deferrals into it must come from that micro business, and not from your W-2 salaries at your other jobs.  They are good if you have funds in other retirement plans you can roll over into them, or if your micro business generates considerable income for you to contribute to the plan.  Otherwise your funds to bulk it up may be limited.

As far as checkbook control, these generally involve a single-member LLC to facilitate. Some IRA custodians will not accept Single Member LLC due to increased regulatory scrutiny that started back in 2009. Other custodians will accept them, provided you appoint a special advisor - a licensed attorney or CPA - who will review all transactions of the LLC to make sure it's not running afoul of prohibited transaction rules.