SDIRA recommendations

[Ronny Crawford]

I'm looking to roll over a previous employer IRA into a SDIRA. I'm seeking guidance from fellow BP members with any companies that you have personal (positive) experience with and would recommend. Id like to be able to lend from this account and/or fix and flip. I appreciate any recommendations. Thanks!

[Doreen Chaisson]

Will your IRA have enough money to purchase and pay for all renovations needed? All expenses related to your IRA asset must be paid for with IRA funds. When borrowing with your IRA, your IRA must secure a non-recourse loan. There are a limited number of banks who offer these types of loans to IRAs and they almost always require the property to be income producing. They typically require a much larger down payment than a traditional mortgage (40% or more), will require a cash reserve in the IRA to buffer against loss of rental income, and generally structure the loans as 3 - 5 year ARMs. Some have restrictions on the types of properties they'll lend on (no raw land or no mobile homes, for example).

Your IRA is responsible for making the mortgage payments to the lender. If the property is income-producing, the portion of the net income attributable to the leveraged part of the purchase will be subject to UBIT tax. Rough example, if you put 60% down and finance 40%, about 40% of the net income after deductions will be subject to this tax. This tax also must be paid by your IRA, not with personal funds. You'll need an accountant to help you calculate your UBIT tax due each year.

Finally, when you sell the property, if there has been a loan in place within the previous 12 months, your IRA will also owe capital gains tax on any gain from sale. If there's no loan in place for 12 months and one day, then all proceeds flow back to the IRA untaxed until distribution (or not taxed at all if in a Roth).

Even if you get a loan from a private lender or use seller carry-back, that loan must also be structured as a non-recourse loan. You cannot personally guarantee any loan to your IRA, nor secure a personal loan collateralized by an IRA asset.

As you can see it's extremely important to consult with a professional before proceeding with any IRA investment.