Self-directed IRA

[Beau Jensen]

I have been trying to educate myself on the advantages of a Self-directed IRA vs Roth IRA.

My curiosity was peaked when I listened to a Podcast recently about a gentlemen that purchases "investment properties" with his Self-Directed IRAs.  In addition, he mentioned that he purchases "investment properties" for his children (who are minors) with the Self-directed IRAs. 

A Couple of more questions: 

1. Can you use a Self-Directed IRA similar to a "Checking Account". Can I purchase property through it and make monthly payments through it allowing the "Cash Flow" to gain interest?
2. Can I roll my current Roth into a Self-directed IRA?
3. Typically, do investors form a LLC when using a Self-directed IRA when purchasing property?

Looking forward to responses from BP members. 

Thanks,

Beau Jensen

[Brian Eastman]

@Beau Jensen

While you could "create" self-employment in order to qualify for a Solo 401(k), that usually does not work to your advantage.  In order for the Solo 401(k) to remain in effect, the self-employment must be ongoing.  The overhead of creating and maintaining a business - if the primary goal is just to qualify for the Solo 401(k) - often offsets the perceived benefits of the Solo 401(k).

A Checkbook IRA LLC is a great tool for taking existing retirement savings and diversifying into real estate.

The structure involves an IRA account that owns a LLC. You manage the IRA owned LLC and direct all investment activities. The IRA at the back end can be any flavor of IRA: traditional, Roth, SEP, etc.

If you have an existing traditional IRA and want to convert to Roth status, the amount of income converted will be taxable in the year of the conversion. Be sure to speak with your CPA about this strategy. It can be beneficial in many circumstances, but comes with a cost. Determining whether it is the correct move for you is a complicated analysis.