Need Advice - Best way to purchase Duplex via IRA?

Question

George Blower · Answer

@Matt B.

The IRA LLC is a good fit if you are trying to limit custodian involvement; however, from a liability perspective it won't matter because IRAs are already protected form creditors in South Carolina. See  S.C. Code Ann. Sec. 15-41-30(12)

In other words, you could open a self-directed IRA and invest it directly in real estate without first using an LLC.

Linda Weygant · Answer

This is probably a question better suited to a lawyer.  Since an IRA is already judgment proof, I don't know that you need additional asset segregation to protect assets within it.  But definitely a great question for a lawyer that understands these things.

William Hull · Answer

I have been thinking about this and found some good reply.

Linda Weygant · Answer

There is no "Best" cookie-cutter, one-size-fits-all solution.  It's going to be a function of your goals, your personal risk tolerance, desire for anonymity, etc.

Talk to the custodian, your lawyer and to your own CPA about these issues for a solution tailored specifically for you.

Linda Weygant · Answer

I think a land trust within an LLC is overkill.  Land trusts are generally set up for anonymity and asset protection.  You can achieve that without going to the hassle and expense of a land trust.  A  land trust for shifting funds for purchasing is unnecessary.

@Dmitriy Fomichenko might know better, but it's my understanding that retirement accounts are generally protected from judgment satisfaction in the event of a lawsuit.  Or at least they are in quite a few states.

Having checkbook control is something desirable for many people.  I personally am somewhat against it for most people.  In my opinion, the custodian is there to serve as a final check on all your transactions to make sure that you are not endangering your retirement account.  I believe this is a good thing as you really want to avoid transactions that could nullify your account and cause the entire balance to be taxable in one year.  I'm no expert (and I'm a CPA), so I like the extra peace of mind that knows that my custodian is going to help make sure I don't get into hot water.

Other people are confident enough in their knowledge of all the rules and regulations (or just don't want to be told no) that they insist on checkbook control.  If that's your scenario, then you'll need an LLC for your IRA to invest in.

The structure of your IRA/LLC/Land Trust is more a function for your attorney and custodian.

What you invest in is more a function for your CPA and custodian.

Dmitriy Fomichenko · Answer

Matt, if you have a self-directed IRA setup then IRA can buy this property. All expenses related to that investment must be paid from the IRA and all income from the property must go back in the IRA.

You personally are not allowed to provide any services to the IRA or receive any personal befits since you are considered to be a disqualified person.

While LLC is not required to make the investment, you can obtain checkbook control over your retirement account by creating IRA owned LLC.

Let me know if you have any other questions.

Laura Richards · Answer

First, decide if/why you want to use the land trust for this particular deal. If it makes sense to use a land trust for this particular acquisition the next step is to decide who or what entity to appoint as the beneficiary of that land trust. The question of who or what entity to appoint as beneficiary is specific to the investor. If you are using IRA funds then you must appoint the IRA as the beneficiary and assign the IRA a beneficial interest that is proportionate to the amount of money the IRA is contributing towards the deal. Whether or not you appoint yourself personally or one of your LLC's as the beneficiary should be decided between you and your CPA because that is a questions of tax exposure since land trusts are just pass through entities with all profits and losses passing directly through to the beneficiary. For what it's worth, I have a lot of clients that use their IRA as the beneficiary of their land trusts.

Need Advice - Best way to purchase Duplex via IRA?

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