How to 'Distribute an Asset' out of a SDIRA after age 59.5?

[Daniel Dietz]

Hello all,

We have bought several properties in our SDIRA and SOLO401K accounts both with cash and using leverage. So good so far. 

A 6 unit that we are looking at right now is owned by an investor that might be willing to seller finance for up to 10 years with about 10-15% down (non-recourse lenders at 40% down at least). We would buy it with our SOLO401K LLC so we did not have to worry about UDFI Tax. We would need to refinance in 10 years to pay off the balloon that would be due. All 3 of us involved in out LLC will be over 59.5 by that time.

What I am wondering is when we hit that '10 year mark' and we need to refinance, IF we wanted to 'buy it from our SOLOs' (I think that is considered a 'distribution'?) is that allowable, and what are the tax ramifications?

An example is we buy it for 400K and put 50K down from our SOLO LLC for a loan of 350K. After 10 years building is worth 450K and loan balance is 250K so 200K of equity.

We could then:

• Refinance with a non-recourse loan of 250K (we would have more than the needed 40% equity at that point) and pull no equity out at that point and keep it in the SOLO LLC.
• We could sell it to a 'third party' and simply have a 200K gain that sits within our SOLO LLC which we could take as distributions as needed.
• We could 'buy the building from our SOLO LLC' and thereby 'distribute it from the SOLO LLC'

THAT is where I get a little confused! I realize it would need an appraisal to establish the value. If we assume it would be worth 450K and a 250K loan so there would be 200K of equity. If we 'bought it' traditionally using a bank loan of 250K to pay off the balance, would that mean the 'equity of 200K' would be considered a distribution for tax purposes? Or would we need to come up with the whole 450K between loans and cash that would all flow into the SOLO LLC?

It seems like there has to be a good answer, but hard to put all the pieces together! To me, the allure of this potential deal is to be able to finance the original purchase at 13% down instead of 40% and therefore making our money work '3 times as hard' and then also at the time of refinance to be able to do a 20% down/equity loan instead of a 40% one, making your money work harder again.

Sorry about the long windedness :-) 

Thanks, Dan Dietz

[Brian Eastman]

@Daniel Dietz

The asset cannot be purchased by you as a plan participant and disqualified party.  The asset needs to be distributed.

The property would be appraised to set the value.  The outstanding loan balance would be deducted to determine the asset value being distributed.

The value would be a taxable distribution treated as regular income and added directly to your AGI.

The lender would need to go along and likely update the note to reflect your ownership when the title changes.  Subsequent to distribution, you could refinance with a conventional mortgage if you wanted to.