Pension / Self Directed IRA question

[Nick Stango]

My wife and I are thinking about moving to another state so we can invest in real estate more easily. We want to buy a duplex, live in one half and rent the other. In order to get a loan to do this (since I am self employed) we may need to go with a private lender as opposed to a conventional mortgage, so we would need a larger down payment. The money we will get from the sale of our house will cover most if not all of this money needed, but we were concerned with not having any other money to invest after purchasing the first duplex. My wife has a pension where she works and we were wondering if we could put that into a self directed IRA and use it to invest in real estate, and if so how would that work. Any info would be greatly appreciated. Thank you, Nick

[Doreen Chaisson]

This would depend on how the property is deeded/divided. Some Duplexes are considered one property (one home with a rental unit). It's taxed as a single building. In this case, if you and your wife are living on one side, your wife's IRA $ would not be able to be involved in the purchase. That would be self-dealing. If the property is divided, with each half of the duplex deeded as a separate property, like a condex, taxed separately, separate tax lots, etc, then your wife's IRA MAY be able to be involved in the purchase of that half of the building. All expenses for that half of the condex would come from her IRA, all income would flow to the IRA. However, there are many things to be aware of with this type of situation: If your wife's IRA owns the other half of the duplex, you will not be able to do any maintenance, nor use that part of the yard for your own personal use, and so forth. If there are any shared utilities or other items (example, a shared driveway, lawn, septic tank or well that needs maintenance, plowing or other upkeep), this creates another set of issues that could be perceived as self-dealing. To avoid prohibited transactions entirely, it's probably best to look for a completely separate rental property that you and your wife will not have any personal involvement in.