Disaster : Commingled personal funds in a self directed IRA

[Chuck Cirulli]

Made a serious mistake. Using round numbers, i Bought a lot for $20,000 with my IRA, properly deeded to a custodian , FBO my IRA. The plan was to build a house. It was very cumbersome to draw funds from IRA to keep up with the construction project. So, with a partner we added an $80000 structure, paid 50-50 from our "personal" funds. I thought it would be easy to later tell custodian that total value is now 100,000 and redeed the property to 20% IRA, 40% me personally and 40% my partner. I now know That cannot be done and the tax-deferred status of the IRA is compromised. Can it be solved by taking an IRA distribution and pay all reqiured taxes? The question is, would the 1099R be for 100,000, even if only 20,000 came from the IRA? Second, does the tax code address this scenario ?

I searched extensively for this topic in the forum to no avail. I hope it warns the community about the possibly devestating pitfalls due to unknowingly breaking the very complex SDIRA rules.  Given the multitude of real estate investment options , it would have been nice if my SDIRA custodian had taken time to ask a few questions to perhaps catch an improper plan before it happened. Thank you all...

[Jaime Raskulinecz]

The only person who can help you at this point is an ERISA attorney or very well versed tax accountant.

It is possible there are ways to correct this serious prohibited transaction, but it is important to contact someone ASAP in order to begin the process.

We ask clients to speak with us early and often about the plans they have for investing with their accounts. It is almost impossible to think of every scenario that could happen that would cause a prohibited transaction.

Mathew Sorensen is a very well respected ERISA attorney who may be able to assist you.

Good luck.

Jaime