All Forum Posts by: Jeffrey Dixon

There are a few states that we exclude. We have found that some state governments are more problematic to deal with. The IRA owned LLC bypasses that. You may find that using the IRA owned LLC is easier when making a real estate purchase, especially when paying bills for the property.

Are you still working for the company that offered the 401k? If so, then the 401k must have an In-Service provision to eligible to move the funds. If from a prior employer you can move them. You must be self-employed with your business to be eligible for a Solo 401k. You cannot have any full time employees with that business or any business you own. 

You would use a new LLC that is owned originally and exclusively by the IRA.

Money from an old 401k can be moved to an IRA. You want a self-directed IRA that allows the purchase of rental properties. Many brokerage firms say they offer self-directed accounts, but when you ask about real estate, they will not hold that type of asset. You may find using an IRA owned LLC to be an easier path to buying and holding the property.

It must be a non-recourse loan, made to the IRA with no personal guarantees from you or close family members. That is all the IRS allows an IRA or Solo 401k to use.

The entire IRA has to be liquidated in 10 years. So, the property needs to be appraised and that value plus any other cash in the IRA would be taxed.

Your IRA can buy an existing note or make a loan to a borrower. It is important to understand the prohibited parties, which are family members your IRA funds could not be lent to.

Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant).

The following are examples of prohibited transactions with a traditional IRA:

• Borrowing money from it.
• Selling property to it.
• Receiving unreasonable compensation for managing it.
• Using it as security for a loan.
• Buying property for personal use (present or future) with IRA funds.

You should consider making these secured real estate loans, so your IRA has the property as collateral.

You cannot borrow from your own IRA or a prohibited party to you. An IRA can use financing from a lender or seller financing to buy real estate. While the IRS allows this, it is a taxable issue. The tax is called Unrelated Debt Financed Income tax (UDFI).

You should also talk with tax attorney about potential issues buying property with IRA funds that is in close proximity to other real estate you own. The IRS has taken exception to that before.