SDIRA

[Robert Farris]

I'm really interested in a Self Directed IRA. So far I'm just trying to understand it all being I'm new to real estate investing.

My question is, can I convert my 401A, 403B from my current employer that I'm fully vested in to a SDIRA?

Anybody in Southeast Michigan or surrounding area using an SDIRA that wouldn't mind talking with me about this?

[Brian Eastman]

@Ben Freeburg

The IRA accounts could form a new LLC specifically for this property, where each of the IRA accounts is a member. You and your associate could be non-owner managers and administer the LLC. The LLC would be the borrower on a non-recourse mortgage, and the IRA's would have exposure to UDFI taxation. The LLC would have a single bank account for handling the investment. The LLC would need to file a partnership return at the state and federal levels. The feds would recognize the IRA ownership and no tax on income would be expected (other than the separate UDFI tax at the IRA level). Not all states follow the federal model, and may want to tax the partnership regardless of the fact that the partners are IRA accounts. Check with your licensed tax advisor familiar with the laws of your state.

Alternately, the two IRA accounts could simply vest title to the property as tenants-in-common. The IRA accounts would then be join borrowers on the note.

This will be more complex at the day-to-day level, but will eliminate some of the tax reporting requirements that would come with a LLC. Of course, the LLC will also provide a layer of liability protection to the IRA accounts they would not have with a direct investment.

If you intend to make multiple investments, a better approach would be for each of you to establish your own self-directed IRA LLC. These single-member LLC entities would not have tax filing requirements at the state or federal level. The two LLC entities could then join-venture into various properties. This would give you much more transaction control than working directly through the custodian, but also provide more flexibility for multiple deals - some of which may be with other partners, or at different equity splits than the first property.