Partnering with IRA -- Conflicting Information

[Chris Eaker]

Hello All,

I've read conflicting info on this, so I would like to know your opinion on the matter. Can I buy a property where I use my SDIRA to fund the down payment and then get the mortgage in my own name? Then when all profits are disbursed, monthly cash flow and final sale, the IRA gets its share based on its percentage of ownership and I get mine? I've heard it's OK, but I've also heard it's self-dealing. So what it is?

[Mark Nolan]

@Chris Eaker

One option is to partner with your self-directed IRA or solo 401k when investing in real estate, but specific rules apply.

Invest in Real Estate Under a Tenancy in Common (TIC)

Under this method, title is taken in both the solo 401k owner’s name and in the name of his or her solo 401k . Following is an example on how title to the property is taken assuming the name of the solo 401k is Oilers Solo 401k Trust and the solo 401k owner’s name is Jim Brown.

Example: 40/60 split between Jim Brown and his solo 401k plan (Oilers Solo 401k Trust)

How the property purchase is recorded: Jim Brown, an undivided 40% interest and Oilers Solo 401k Trust , an undivided 60% interest.

Compliance Notes

• The percentage of ownership is determined by how much funds each party invests at time of real estate purchase.

• All expenses and income are shared based on the ownership percentages.

• No debt financing can be incorporate under a tenancy in common (TIC) transaction; otherwise, the transaction will be deemed prohibited.

• The property may not be purchased from or sold to a disqualified party (e.g., the solo 401k owner, his or her parents, children, to name few).

• The solo 401k owner is not allowed to use the property for personal use.

Invest in Real Estate Using a LLC

• When both the solo 401k owner (in this example Jim Brown) and his solo 401k (Oilers Solo 401k Trust) pool their funds and invest in an LLC for the purpose of investing in real estate, title to the property is taken in the name of LLC.

• For example, if the name of the LLC is Big Investments LLC, title on the deed would read Big Investments LLC.
• Just like above, the LLC cannot obtain a loan and the solo 401k owner and other disqualified individuals are prohibited from using the LLC owned property for personal use.