SD IRAs

[Michael Lleverino]

SD IRAs - I'm considering establishing a SD IRA (TX) to buy rental and flip properties, but first wanted to get some feedback from the BP family to better understand any challenges buying through this medium. Basically, should I buy outright or through the SD IRA? Any feedback/insight will be greatly appreciated.

[Matt Devincenzo]

I would absolutely establish a SDIRA or a solo 401K depending on what may be better for your specific situation.

I would also not flip properties in it. Flipping is a business, so doing that in an IRA leads to paying unrelated business income tax (UBIT) which is basically designed to keep the playing field level for your IRA and other non tax exempt businesses.

I would also be hesitant to buy a rental in your IRA, and I do have a few in mine right now. Since buying them I have realized that there are a few reasons not to. One is that you can leverage, but it has to be non-recourse which is difficult to find and if you do then your IRA is subject to unrelated debt financed income (UDFI) which again negates the benefit of an IRA being a tax deferred/free entity. Two while I don't buy real estate based on the tax advantages they are a nice bonus, when your IRA holds RE you lose those tax benefits since it is a tax deferred/free entity.

So I've realized that lending and purchasing discount RE notes are better uses of that money, and then do the brick and mortar RE outside your IRA. I may still buy RE in my IRA at some point but my preference will likely be to own it outside my IRA.

Also what I said was more specific to a SDIRA a solo 401K has some different rules regarding leverage and flipping ect. I don't have one myself so can't comment on the specifics but others who do have said the same thing, generally lending and purchasing discount notes is the better use of those funds.

(No legal or tax advice)