All Forum Posts by: Brian Eastman

@Gene Mitchell

You have been provided with incorrect information by your custodian, unfortunately. This is not uncommon. As administrators of IRA accounts and a fiduciary, IRA custodians are prohibited by rule from providing tax or legal guidance, but sometimes in a desire to be helpful an un-trained customer service person will provide what could be construed as such.

If the LLC is a single member entity as it should be, you can simply file away the 1099 forms with your LLC records and forget about them. The tax liability of the LLC flows through to the tax-exempt IRA account, and - if the EIN was obtained properly - the IRS should be aware of this. The IRA custodian will file a 5498, which is all that the IRS requires.

The firm that provided the LLC entity for you should be able to provide more detailed and accurate guidance on such a topic. We certainly do that for our clients.

@Rodney Marcantel

I'm on the same page as @Adam Hershman with the question about how you get tax-deferred 403b money into an account that can be borrowed from in the manner you indicate.

It is typical with a checkbook IRA LLC to have quarterly fees through the IRA custodian that holds the LLC interest and does annual reporting.

I would differ with Adam on the point about idle cash. In a custodian held account, that can be an issue, but within an IRA LLC you can open a stock trading account or keep idle cash deployed in a variety of ways beyond sitting in cash in a checking account. It generally does not make sense to move existing assets to cash for purposes of a transfer, only to re-invest back into the market, however, so evaluating the details of how/when you fund a structure would be a good topic to consider as you look into this.

Flipping with IRA money can be very profitable, but does generate taxes within the IRA known as UBTI. Definitely something you want to research. And keep in mind that with an IRA, you can "have houses flipped" with IRA money, but you cannot "be the flipper". There is no sweat equity when it comes to IRA money. While you and your wife can help her father invest his capital, you are disqualified parties to his IRA and cannot benefit from or inject value into the IRA through your own efforts.

@Rodney Marcantel

It would seem you have a mis-understanding of how a self directed IRA functions. There is no allowable mechanism whereby you draw from the account and repay on a monthly schedule. IRA's do not allow for loans to the account holder.

You simply cannot use IRA funds to flip houses in your own name.

If the IRA capital is being used to flip houses, all returns go to the IRA and gains from that type of trade or business activity are subject to UBTI taxation. Passive gains from lending or collecting rents are not taxed in this manner.

The idea of investing that capital differently get get better income is fantastic, but it will need to remain within the IRA until such time as it is being taken as a taxable distribution.

I'd suggest you continue to research this field by speaking with a professional who really understands self directed IRA plans and rules.

@Douglas Snook

A Roth IRA may not be rolled over into a Solo 401k. So if you wish to diversify outside of the stock market, you would need to look at a self-directed IRA for those funds.

The 401k loan is the same whether you are the employee of someone else's plan or your own plan.  Personally, I feel it is a strategy for those who are not too sharp with math, since you borrow the pre-tax money and repay with post-tax dollars.  Hard money is generally less expensive than the 25-30% tax bracket most folks with a good enough job to have a 401k are in, and that 25-30% is what that loan is really costing you.

A solo 401k is a fantastic program if you are self employed, as it provides a great opportunity to build your retirement on either the tax-deferred or Roth side, and the ability to invest as you see fit rather than being limited to what the guys on Wall St are selling.

You are correct that there are some restrictions when you choose to invest your IRA or 401k into real estate. It is not money added to your personal real estate investing capital pool, but rather a means to diversify that locked-away retirement savings into assets you can choose and control via the plan.

@Kathryn Marchetti

You should absolutely be able to roll the SURS program into an IRA of your choosing.

So you know, a self-directed IRA is no different than any other IRA with respect to rollovers, transfers, contributions, distributions, beneficiaries, etc. Self directing is simply a different business model that allows for a broader choice of investments. Instead of being limited to what a particular institution or advisor sells, you can invest in anything allowed by the tax code - which includes real estate.

There is a lot of good information here on BP on the topic.  Read up a bit and then reach out to some of the professionals here who can help you get a good understanding of your options and what plan format will work best for your goals.

@Kevin Moen

SDIRA accounts are subject to the exact same distribution rules as any other IRA. This is retirement savings and has tax preferred status to help you build up a bigger nest egg once you reach retirement age. The trade off is that the funds are essentially off-limits until such time as you retire.

A SDIRA is simply a means of investing differently and having the choice to diversify out of stocks and into something you know such as real estate.

@Account Closed

So long as person B is not a disqualified party to person B, then they can joint venture / partner together.

Forming a LLC where person A's IRA and person B are the members is fine.

The equity arrangement does not need to directly align with capital provided, so long as both members agree.

Because debt financing is being used, there are two considerations.

1 - The debt must be non-recourse with respect to person A and their IRA. Person B may pledge a person guarantee if they like.

2 - Because person A's IRA is receiving income that is derived from the use of debt financing, the IRA will have exposure to UDFI taxation. Do not panic. The impact of the taxation should be minimal relative to the leveraged increase in return for the IRA dollars deployed.

You will definitely, absolutely want to seek the counsel of a CPA and/or attorney familiar with IRA rules and UDFI tax implications before proceeding.

This type of deal is, while not common, frequently entered into, and can be beneficial for both parties.

Good luck.

@Don Harris

Fantastic.

You are absolutely correct that the deferral of taxes is effectively the government providing a matching contribution to your retirement savings.

For those who are self-employed like @Jay Hinrichs, the ability to set aside more significant amounts in a Solo 401(k) is an added bonus.

Thanks for reminding folks of the power of deferring income as a means to generate a pool of investment capital.

@Doug McLeod 

Collaborative lending such as you describe would be viewed as a prohibited transaction. Cashing your your IRA to buy real estate is not something you should be advising, frankly. Yes, investing with an IRA is different than investing with personal cash. But, you you happen to have accumulated some tax-sheltered retirement money, giving up those benefits is unwise. Rather, invest that money in the assets that will provide you with the best possible security and return. Sure, you'll pay taxes when you take it out, just like if you grew your retirement savings in the stock market, but if you can grow your retirement nest egg to a good large sum by being able to invest that capital without the gains themselves being taxed at all, you come out ahead.

@Dustin DuFault 

Generally speaking, you need to avoid any transactions or provision of benefit from a disqualified party to an IRA or 401k. As such, "combining" funds in the manner you suggest becomes very difficult and even if done "in the recommended fashion" not without risk.

There is an interpretation that an IRA/401k and disqualified party may joint venture in a very rigid fashion.

The title is vested jointly on day one, reflecting the percentage of ownership.

The equity in the project may not be altered in any way between the JV partners.

AND - the tricky part - this is only OK if both sides could do the transaction alone and are not being enabled to participate in a transaction they would not have been able to without access to the disqualified funds.

So, if your 401k (could) purchase a property - perhaps with a non-recourse loan - and chooses to JV with you instead, that is OK. If you our your plan could not really do the transaction without access to both sets of funds, don't go there.

This is an advanced and risky strategy that requires careful consultation with tax counsel.

So you know, we typically do not "promote" this type of transaction.