Self Directed IRA Questions

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Self Directed IRA Questions

Bob Mastroianni
Wholesaler · West Deptford, NJ · Member since 2016 · 54 posts · 18 votes

I have a few questions about Self Directed IRA's and was hoping that some of the BP community could help me out a bit.

1) Question's for ME: So, I am in the process of becoming fully self-employed. I currently have 2 401k accounts that I cannot contribute to any longer, because I am not an active employee of those companies (total amount is about $70k). I'm considering the option of moving them into a Self-Directed IRA to invest in real estate. First, what are the pros & cons? Second, can I invest in my own real estate properties? So, example, I find a property where the numbers work & want to invest in that property. Let's say that it's a flip, can I use my own self-directed IRA money to buy & repair that property, and then move all of the money (original amount plus gain) back into the IRA for the next deal?

2) Questions for My Investor's: I know that there are some good IRA custodian's, but what info do I need to know in order to educated my potential investors? Also, what should I look for in a custodian to ensure that my investor's are getting the best treatment?

3) Local Question: I'm in the Philadelphia & South Jersey Market, who can you recommend as a Self-Directed IRA Custodian?

Thanks for your help!!!

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Mark Nolan
Professional · Carlsbad, CA · Member since 2012 · 12k+ posts · 1k+ votes
10y

@Bob Mastroianni

IRA Services Trust Company is a popular IRA custodian for 4 reasons:

1. They have been in business since 1978

2. Competitive Fees

3. Timely processing of paperwork

4. They serve clients nationwide

Following are the similarities and differences between the solo 401k and the self-directed IRA.

The Self-Directed IRA and Solo 401k Similarities

  • Both were created by congress for individuals to save for retirement;
  • Both may be invested in alternative investments such as real estate, precious metals tax liens, promissory notes, private company shares, and stocks and mutual funds, to name a few;
  • Both allow for Roth contributions;
  • Both are subject to prohibited transaction rules;
  • Both are subject to federal taxes at time of distribution;
  • Both allow for checkbook control for placing alternative investments;
  • Both may be invested in annuities;
  • Both are protected from creditors;
  • Both allow for nondeductible contributions;
  • Both are prohibited from investing in assets listed under I.R.C. 408(m); and

The Self-Directed IRA and Solo 401k Differences

  • In order to open a solo 401k, self-employment, whether on a part-time or full-time basis, is required;
  • To open a self-directed IRA, self-employment income is not required;
  • In order to gain IRA checkbook control over the self-directed IRA funds, a limited liability company (IRA LLC) must be utilized;
  • The solo 401k allows for checkbook control from the onset;
  • The solo 401k allows for personal loan known as a solo 401k loan;
  • It is prohibited to borrow from your IRA;
  • The Solo 401k may be invested in life insurance;
  • The self-directed IRA may not be invested in life insurance;
  • The solo 401k allow for high contribution amounts (for 2015; the solo 401k contribution limit is $53,000, whereas the self-directed IRA contribution limit is $5,500);
  • The solo 401k business owner can serve as trustee of the solo 401k;
  • The self-directed IRA participant/owner may not serve as trustee or custodian of her IRA; instead, a trust company or bank institution is required;
  • When distributions commence from the solo 401k a mandatory 20% of federal taxes must be withheld from each distribution and submitted electronically to the IRS by the 15th of the month following the date of each distribution;
  • Rollovers and/or transfers from IRAs or qualified plans (e.g., former employer 401k) to a solo 401k are not reported on Form 5498, but rather on Form 5500-EZ, but only if the air market value of the solo 401k exceeds $250K as of the end of the plan year (generally 12/31);
  • When funds are rolled over or transferred from an IRA or 401k to a self-directed IRA, the amount deposited into the self-directed IRA is reported on Form 5498 by the receiving self-directed IRA custodian by May of the year following the rollover/transfer.
  • Rollovers (provided the 60 day rollover window is satisfied) from an IRA to a Solo 401k or self-directed IRA are reported on lines 15a and 15b of Form 1040;
  • Pre-tax IRA contributions on reported on line 32 of Form 1040;
  • Pre-tax solo 401k contributions are reported on line 28 of Form 1040;
  • Roth solo 401k funds are subject to RMDs;
  • A Roth 401k may be transferred to a Roth IRA (Note that from a planning perspective, it may be advantageous to transfer Roth Solo 401k funds to a Roth IRA before turning age 70 ½ in order to escape the Roth RMD requirement applicable to Roth 401k contributions including Roth Solo 401k contributions and earnings.);
  • Roth IRA funds are not subject to requirement minimum distributions (RMDs);
  • The fair market value (FMV) of assets held in a self-directed IRA is reported on form 5498;
  • The fair market value of assets held in a solo 401k are reported on Form 5500-EZ;
  • At termination, the solo 401k is required to file a final Form 5500-EZ and 1099-R; and
  • At termination, the self-directed IRA is only required to file a form 1099-R.
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  • Matthew Shapson
    Investor · Philadelphia, PA · Member since 2016 · 13 posts · 3 votes
    10y

    Hello Bob,

    I have purchased a few properties from a retired attorney who heavily uses Roth IRA's and other self directed retirement accounts to purchase / sell properties. He owned his firm and set up his accounts as a self employed business owner. He teaches people the details and methods of this style of investing and I am planning on working with him on this although I have not done so yet. I will PM you his contact info.

    Best of luck!

    Matthew Shapson

    0Reply
  • Chris Soignier
    Real Estate Broker · North Richland Hills, TX · Member since 2013 · 1k+ posts · 607 votes
    10y

    If you qualify (no FT W2 employees other than your spouse), a Solo 401K is a far better investment vehicle.    Checkbook control, higher contribution limits, no UBIT/UDFI tax on leveraged investments, ability to borrow from your balances for any reason, etc.

    Also, note that if you have Roth 401K balances, I believe you can do a rollover to either a Solo 401K or SD IRA, but you can't roll over Roth IRA balances to a Solo 401K for some silly reason. Ask me how I know!

    1Reply
  • Mark Nolan
    Professional · Carlsbad, CA · Member since 2012 · 12k+ posts · 1k+ votes
    10y

    @Bob Mastroianni

    IRA Services Trust Company is a popular IRA custodian for 4 reasons:

    1. They have been in business since 1978

    2. Competitive Fees

    3. Timely processing of paperwork

    4. They serve clients nationwide

    Following are the similarities and differences between the solo 401k and the self-directed IRA.

    The Self-Directed IRA and Solo 401k Similarities

    • Both were created by congress for individuals to save for retirement;
    • Both may be invested in alternative investments such as real estate, precious metals tax liens, promissory notes, private company shares, and stocks and mutual funds, to name a few;
    • Both allow for Roth contributions;
    • Both are subject to prohibited transaction rules;
    • Both are subject to federal taxes at time of distribution;
    • Both allow for checkbook control for placing alternative investments;
    • Both may be invested in annuities;
    • Both are protected from creditors;
    • Both allow for nondeductible contributions;
    • Both are prohibited from investing in assets listed under I.R.C. 408(m); and

    The Self-Directed IRA and Solo 401k Differences

    • In order to open a solo 401k, self-employment, whether on a part-time or full-time basis, is required;
    • To open a self-directed IRA, self-employment income is not required;
    • In order to gain IRA checkbook control over the self-directed IRA funds, a limited liability company (IRA LLC) must be utilized;
    • The solo 401k allows for checkbook control from the onset;
    • The solo 401k allows for personal loan known as a solo 401k loan;
    • It is prohibited to borrow from your IRA;
    • The Solo 401k may be invested in life insurance;
    • The self-directed IRA may not be invested in life insurance;
    • The solo 401k allow for high contribution amounts (for 2015; the solo 401k contribution limit is $53,000, whereas the self-directed IRA contribution limit is $5,500);
    • The solo 401k business owner can serve as trustee of the solo 401k;
    • The self-directed IRA participant/owner may not serve as trustee or custodian of her IRA; instead, a trust company or bank institution is required;
    • When distributions commence from the solo 401k a mandatory 20% of federal taxes must be withheld from each distribution and submitted electronically to the IRS by the 15th of the month following the date of each distribution;
    • Rollovers and/or transfers from IRAs or qualified plans (e.g., former employer 401k) to a solo 401k are not reported on Form 5498, but rather on Form 5500-EZ, but only if the air market value of the solo 401k exceeds $250K as of the end of the plan year (generally 12/31);
    • When funds are rolled over or transferred from an IRA or 401k to a self-directed IRA, the amount deposited into the self-directed IRA is reported on Form 5498 by the receiving self-directed IRA custodian by May of the year following the rollover/transfer.
    • Rollovers (provided the 60 day rollover window is satisfied) from an IRA to a Solo 401k or self-directed IRA are reported on lines 15a and 15b of Form 1040;
    • Pre-tax IRA contributions on reported on line 32 of Form 1040;
    • Pre-tax solo 401k contributions are reported on line 28 of Form 1040;
    • Roth solo 401k funds are subject to RMDs;
    • A Roth 401k may be transferred to a Roth IRA (Note that from a planning perspective, it may be advantageous to transfer Roth Solo 401k funds to a Roth IRA before turning age 70 ½ in order to escape the Roth RMD requirement applicable to Roth 401k contributions including Roth Solo 401k contributions and earnings.);
    • Roth IRA funds are not subject to requirement minimum distributions (RMDs);
    • The fair market value (FMV) of assets held in a self-directed IRA is reported on form 5498;
    • The fair market value of assets held in a solo 401k are reported on Form 5500-EZ;
    • At termination, the solo 401k is required to file a final Form 5500-EZ and 1099-R; and
    • At termination, the self-directed IRA is only required to file a form 1099-R.
    2Reply
  • Daria B.
    Rental Property Investor · Gainesville, FL · Member since 2015 · 1k+ posts · 432 votes
    10y

    @Mark Nolan you are a God send this morning I awoke with the very same topic on my mind. Yesterday, I was laid off and immediately thought of my 401k that I am transferring to my existing individual IRA held at a different institution. While that is in motion, and have already begun researching SDIRA I am looking for other answers to be able to utilize these monies for investing. Thanks for the details and differences of the solo and sd. Sending you a PM as I would like to further discuss my particular situation. Thanks

    0Reply
  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
    10y

    @Bob Mastroianni

    To answer your questions:

    1) You can rollover your old 401k accounts to either SD IRA or Solo 401k. After the new account is established you can use it to invest in real estate. Please note however that your IRA or 401k will be the owner of the property, not your personally. You will pay for the property from your account, the title will be vested in the name of your retirement account, all of the expenses related to the property must be paid from the account and all of the profits must go back into the account (you personally can't keep any of that).

    If you decide to buy a property in your own name (you personally take the title) - then in this case you CAN NOT use your retirement account to pay for anything related to that property.

    2) In order for you to provide basic education to your investors you need to get some basic education first. And BP is the place to get that. The topic of self-directed investing has been discussed here many many times, just do the search using related keywords and you'll find tons of discussions here on the forum - this will be a good way to get some education. 

    3) The location of the custodian is not that important. What's most important is the qualify of services they provide. Ask for recommendations and talk to clients who are using their services to get an idea.

    And lastly getting back to your own situation, since you are a self-employed as Chris mentioned above you will be much better off with the Solo 401k plan. Few benefits have been mentioned and if you want to get more detailed understanding you can check out this blog post:

    http://www.biggerpockets.com/blogs/2810/blog_posts...

    @Chris Soignier is the owner of the Solo 401k plan and he knows it first hand, ask him!

    2Reply
  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
    10y
    Originally posted by @Daria B.:
    this morning I awoke with the very same topic on my mind. Yesterday, I was laid off and immediately thought of my 401k that I am transferring to my existing individual IRA held at a different institution. While that is in motion, and have already begun researching SDIRA I am looking for other answers to be able to utilize these monies for investing. Thanks for the details and differences of the solo and sd. Sending you a PM as I would like to further discuss my particular situation. Thanks

    Daria, I'm sorry to hear about you loosing your job but this opens up an opportunity for you to take control over your retirement accounts. You can consolidate your existing IRAs with the 401Ks from previous employers into a new self-directed IRA and gain the control how those funds are invested.

    Good luck to you!

    0Reply
  • Paulette Midgette
    Investor · Philadelphia, PA · Member since 2014 · 344 posts · 276 votes
    10y

    Hi @Bob Mastroianni,

    I will attempt to answer your questions in the order to wrote them.

    1. I also had a 401K from a previous employer that I could no longer contribute to. I rolled these funds over to a Roth IRA self-directed account a 3 months ago. So this is how it works. Once you use your IRA to purchase real estate (or make other investments, such as tax lien certificated, precious metals, and others), all monies from a buy and real sale or rental income (minus expenses) must be put back into your IRA account. If you take any of funds before the legal age that you are allowed to do so you will be penalized.

    The pros, you can invest in your own real estate properties; you can partner with yourself or others. For example say you purchase a 100k property as a rental. Half of the funds come from your IRA and the other half comes from a personal savings account or bank. Let's say your net rent after expenses is $1000 per month. Each month half of the profits will go to your IRA and the other half will go to you; as you build your IRA value to can buy more or higher end properties. I have a friend who as 6 properties purchased with his self-directed IRA; you are not limited to real estate, you can use your IRA to loan money to others.

    Cons, I think there are two many fees, but might just me being a little cheap; I can't withdraw the monies until I reach legal retirement age.  Outside of that I don't have any cons.

    2. In order to help your investors you really need to educate yourself and develop a good working knowledge of SD IRAs.  I looked for a custodian with experience, in the business for a long time.  I wanted a custodian close to home (my friends custodian is in TX and he live ins PA), within driving distance, I want to have a personal relationship with my custodian.  Lastly, someone who would educate me.

    3. My custodian is Camaplan.  There offices are 15 minutes from my home.  They offer in classroom and online course and my custodian rep is also available for questions or a meeting.  I am very happy with the relationship thus far!

    0Reply
  • Bob Mastroianni
    OP
    Wholesaler · West Deptford, NJ · Member since 2016 · 54 posts · 18 votes
    10y

    Thanks everyone for such detailed feedback. The information has been great. I am definitely going to make a move within the next week or so. This has been very valuable to me & to my business.

    Thanks again @Matthew Shapson, @Chris Soignier, @Mark Nolan, @Dmitriy Fomichenko, @Paulette Midgette 

    0Reply
  • Louis Alvarez
    CPA · Valrico, FL · Member since 2014 · 33 posts · 18 votes
    10y

    Can some of our SDIRA experts comment on this statement by Paulette?  It seems over generalized and may lead others down the wrong path.

    "The pros, you can invest in your own real estate properties; you can partner with yourself or others. For example say you purchase a 100k property as a rental. Half of the funds come from your IRA and the other half comes from a personal savings account or bank. Let's say your net rent after expenses is $1000 per month. Each month half of the profits will go to your IRA and the other half will go to you; as you build your IRA value to can buy more or higher end properties."

    It's a little more hairy than that, is it not?

    0Reply
  • Rajeev Kotyan
    Professional · Lexington, MA · Member since 2016 · 136 posts · 43 votes
    10y

    @Louis Alvarez: The statement is correct, but the caveats have been omitted. One of the primary caveats when doing a partnership with a disqualified party (i.e. yourself) and your IRA, is that you have to document that you are not enabling your IRA to complete the transaction, or that the IRA is not enabling you to complete the transaction. This is critical. There is no one method to document this, as each case is different.

    0Reply
  • Daniel DietzPro Member
    Rental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
    10y

    @Louis Alvarez, 

    I am going to answer this from an INVESTOR perspective who is doing this. Please check with a professional (there are several good ones here on the BP chat boards) before doing what I am going to say. 

    I am in a three way partnership with my brother and father, all using SDIRAs (if we had known about SD401Ks I think we might have gone that route - hindsight!). Each of our SDIRAs owns 1/3 of an 'check book controled LLC' which in turn owns our rentals. My understanding is that I as a 'person' could also have been a 'percentage partner' also if desired.

    The key things is that EVERYTHING expense and income wise in the LLC, down to paying the water bill, etc... must be done in EXACTLY the same proportion as what the LLC was originally set up as. NO exceptions. If we didn't have enough reserves and need a major repair, we would EACH have to invest the funds at the 1/3 rate. If one of us did not have that amount in our SDIRA, we would need to either make a contribution or do a roll over to get it there.

    When the time comes to make withdrawals from the LLC someday in retirement, we will EACH need to take even 1/3 amounts out.

    Hope this is making sense :-)

    A few things we thought over ahead of time were things like what if dad wants with drawls before us? No worry, he has lots of other retirement funds so very unlikely. What is brother and I want to buy more properties and dad doesn't? We would need to set up a new 2 member LLC but could still use our SDIRAs, assuming they had enough funds left.

    One other note is that the proportions do NOT need to be 'in even proportion to the number of members in the LLC', meaning we could have done 40, 40, 20 or what ever we like.

    So one of the main purposes of the LLC is to keep it simple and fund it once (or at least infrequently) in the need proportion and let the LLC then do all in income and expenses which will automatically be in 'the right proportions'

    Dan Dietz

    [email protected]608-524-4899
    0Reply
  • Daria B.
    Rental Property Investor · Gainesville, FL · Member since 2015 · 1k+ posts · 432 votes
    10y
    Originally posted by @Dmitriy Fomichenko:

    @Bob Mastroianni

    To answer your questions:

    1) You can rollover your old 401k accounts to either SD IRA or Solo 401k. After the new account is established you can use it to invest in real estate. Please note however that your IRA or 401k will be the owner of the property, not your personally. You will pay for the property from your account, the title will be vested in the name of your retirement account, all of the expenses related to the property must be paid from the account and all of the profits must go back into the account (you personally can't keep any of that).

    If you decide to buy a property in your own name (you personally take the title) - then in this case you CAN NOT use your retirement account to pay for anything related to that property.

    2) In order for you to provide basic education to your investors you need to get some basic education first. And BP is the place to get that. The topic of self-directed investing has been discussed here many many times, just do the search using related keywords and you'll find tons of discussions here on the forum - this will be a good way to get some education. 

    3) The location of the custodian is not that important. What's most important is the qualify of services they provide. Ask for recommendations and talk to clients who are using their services to get an idea.

    And lastly getting back to your own situation, since you are a self-employed as Chris mentioned above you will be much better off with the Solo 401k plan. Few benefits have been mentioned and if you want to get more detailed understanding you can check out this blog post:

    http://www.biggerpockets.com/blogs/2810/blog_posts...

    @Chris Soignier is the owner of the Solo 401k plan and he knows it first hand, ask him!

    Thanks for the information. I am not self-employed which is why I looked at the SDIRA. I have already set in motion to get my what was my 401(k) transferred to an existing IRA I've had for many years. From there I want to set up a SDIRA with those funds.

    0Reply
  • Rajeev Kotyan
    Professional · Lexington, MA · Member since 2016 · 136 posts · 43 votes
    10y

    @Daniel Dietz: Couple of items:

    (1) You can still rollover your LLC ownership from an IRA to a 401K (there is nothing stopping you from doing that) -- making a generic statement do not know your specific situation

    (2) You mention that your IRA and your fathers's IRA are partners in the LLC (picked on your father as your brother is not a disqualified party). Hopefully you documented adequately that the participation of your father's IRA did not enable your IRA to complete the transaction or vice-versa.

    (3) Based on what you describe, additional capital contributions from anyone of your IRAs or 401k will not be permitted, as that will be a prohibited transaction, due to the fact that the Manager of the LLC is now a fiduciary (greater than 25% of the ownership is IRA owners) and additional capital contribution to a fiduciary (disqualified party) is a prohibited transaction.

    Hope this helps...

    0Reply
  • Dennis Weber
    Real Estate Investor · Indianapolis, IN · Member since 2014 · 316 posts · 165 votes
    10y

    @Dmitriy Fomichenko @Mark Nolan

    Was wondering if you guys could comment on the above statements about using personal and sdira monies for investments. I've been warned against such. Maybe I misunderstood. 

    0Reply
  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
    10y
    Originally posted by @Dennis Weber:

    @Dmitriy Fomichenko @Mark Nolan

    Was wondering if you guys could comment on the above statements about using personal and sdira monies for investments. I've been warned against such. Maybe I misunderstood. 

    Dennis, you have been warned correctly. While it is possible in some cases to use IRA funds combined with your personal - in most cases this would be a prohibited transaction. My suggestion is to stay away from this. But if you decide to look into this direction - be sure to work with a competent professional to guide and to ensure that this cane be done, like I said in many cases this would not work.

    0Reply
  • Daniel DietzPro Member
    Rental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
    10y

    @Rajeev Kotyan, 

    Mine is a SDROTH IRA, my understanding is that is the one and only kind that can not be rolled over to a SD401K.

    We did make note that any one of us had the funds in our individual IRAs that we could have bought the  properties by ourselves... I forget the legal wording, but that was the jist of it.

    As to the 'additional contributions' issue. I had read up on that, and asked a lot of questions about it to the law firm that set this up for us (they specialize in SDIRAs as one of their things). They cited some case worked that they believed made that a false belief. I think it might be similar to this line of thinking if you read towards the end of the section 'Myth #1'  

    https://www.questira.com/2012/03/06/self-directed-...

    I would love to hear what thoughts you, @Dmitriy Fomichenko @Brian Gibbons or other Pros have on this part of the puzzle.

    Thanks, Dan Dietz

    [email protected]608-524-4899
    0Reply
  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
    10y
    Originally posted by @Paulette Midgette:

    Hi @Bob Mastroianni,

    ... The pros, you can invest in your own real estate properties; you can partner with yourself or others. For example say you purchase a 100k property as a rental. Half of the funds come from your IRA and the other half comes from a personal savings account or bank...

    Paulette, I'm not sure what you exactly mean by saying "invest in your own real estate properties" and who is advising you on this but you personally absolutely can not sell property that you already own to your self-directed IRA. The reason being is that you are considered to be a disqualified person and therefore your IRA is prohibited from conducting any business with you personally. 

    Now regarding partnering with yourself. See, the problem with commingling your retirement and personal funds to make an investment is that the IRS could easily argue that the transaction violates the IRS self-dealing and conflict-of-interest prohibited transaction rules pursuant to Internal Revenue Code 4975(c(1(D),(E) and (F). They could make the case that using your retirement funds to make the investment personally benefited the individual, because without the retirement funds, the real estate investment could not have been made.

    Here is the link to the code that explains this:

    https://www.irs.gov/pub/irs-drop/rr-06-38.pdf

    0Reply
  • Rajeev Kotyan
    Professional · Lexington, MA · Member since 2016 · 136 posts · 43 votes
    10y

    @Daniel Dietz: Correct on ROTH IRA.. should have put the exception in my statement...

    With respect to the additional capital contributions.. while the general statement is as I have mentioned, as usual with any of these laws and regulations, there are exceptions. The exceptions that make it possible under plan assets and plan fiduciaries increase the amount of documentation that is required, that sometimes the cost of following these exceptions and exemptions outweighs the return of investment. The Myth #1 that you state is something that we have been working with the IRS and DOL for the last couple of years to get a clear guidance from them, and as such until we get a clarity from the good folks who actually have the authority to charge fines and fees, we generally stay away from these scenarios. Better to be safe than sorry!

    0Reply
  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
    10y
    Originally posted by @Daria B.:

    Daria, you don't have to move your old 401k to a conventional IRA first and then into self-directed. You could move those funds straight into new self-directed IRA.

    0Reply
  • Bob Mastroianni
    OP
    Wholesaler · West Deptford, NJ · Member since 2016 · 54 posts · 18 votes
    10y

    Thanksfor clearing the "disqualified person" thing up @Dmitriy Fomichenko I feel like I heard in the past that you would not be able to invest in a deal where you (as an individual) are also a partner in that deal. 

    0Reply
  • Daria B.
    Rental Property Investor · Gainesville, FL · Member since 2015 · 1k+ posts · 432 votes
    10y
    Originally posted by @Dmitriy Fomichenko:
    Originally posted by @Daria B.:

    Daria, you don't have to move your old 401k to a conventional IRA first and then into self-directed. You could move those funds straight into new self-directed IRA.

    I would but I am not prepared to move it into a SDIRA. I am just learning about them and the "checkbook IRA LLC" and no idea on a company that would hold the funds. The best thing for me now is to get it moved from the 401k is into my existing IRA.

    0Reply
  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
    10y

    That makes sense @Daria B., I just wanted to make sure the readers are aware that the funds from a 401k can be moved directly into SD IRA.

    0Reply
  • Paulette Midgette
    Investor · Philadelphia, PA · Member since 2014 · 344 posts · 276 votes
    10y

    @Dmitriy Fomichenko thanks for you feedback. When I say invest in your own real estate I am only talking about partnering with yourself. I understand what a disqualified person is and what you are and are not allowed to do with self-directed IRAs. Also since I must use a custodian for these transactions the custodian would not allow me to complete any transactions that would go against the IRA regulations.

    Partnering with myself has not been a problem since I am not commingling funds.  The transactions are seen as two separate entities.  Again this is why one must use a custodian to carry out these transactions.  I have done my homework, taken course, and am not using self-directed partnering with myself and others.  So far no IRS issues.

    0Reply
  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
    10y

    @Paulette Midgette

    the custodian will do their best to look at the facts that are available and if the see a prohibited transaction they will stop it. HOWEVER, not every prohibited transaction is stopped by the custodian (I have seen this), and it is not the custodian who are responsible - the account holder is. If you review the custodial agreement that you signed when you established your self-directed IRA you will see that they do not take any liability - you are 100% responsible.

    I have also seen in some cases when account holder was dealing with incompetent representative on the custodian end and was given incorrect guidance. The bottom line is this: having custodian might be helpful in some cases but as self-directed investor you need to be aware of the rules since you are the one who will be penalized for the violation of the rules (not your custodian). 

    Now regarding pulling your funds together with your IRA funds in order to make the investment - if the primary reason for you doing so was the fact that you didn't have enough funds in your IRA and had to use personal funds in order to make that investment (or vice versa) - you are really in the grey area. You may not get caught but that doesn't mean the transaction is allowed. Partnering with non-disqualified person is not a problem, but if you decide to use your IRA to partner with yourself again (or another disqualified person) in the future - I would strongly suggest you seek guidance from a qualified professional such as attorney experienced in self-directed investing who will have a fiduciary responsibility to advise you, for your own protection.

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