Inherited IRA Withdrawal Questions

[Joe Wood]

Hey Guys,

I recently inherited a traditional IRA (Non-spouse) and would appreciate additional feedback from those who are familiar with what options I would have. I am looking to pull out about $100k right now in order to purchase some investment properties.

The big question I have is, will I be able to transfer this into my LLC which then can be used as an investment to avoid/defer tax?

From what I understand, self-directed IRA's are able to avoid tax when investing directly into something that is considered an investment.. real estate. Only problem is I cannot do that since I'm not the spouse.

I have spoke with my accountant and he said that we can accelerate depreciation up front in order to avoid the large tax hit initially. Downside is when it comes time to sell, I would be hit with depreciation recapture tax. From what I've read, it would be a maximum of 25%, which still would be better than income tax. 

[Brian Eastman]

@Joe Wood

The distribution from the IRA to yourself is a taxable event. There is not anything you can do to change that. Taking a large chunk such as $100K out of an IRA all at once will put all of your income for the year in a higher tax bracket.

From there anything you do with the after-tax money is fine.  Of course, if you then generate additional taxable income, that is something you can work to mitigate with your CPA.

You could choose to form a self-directed IRA and invest the money directly into real estate. Any IRA, including an inherited account, can be setup to be self-directed. The IRA funds would not be able to be combined with other personal funds as in your note above. Rather than deplete the tax-sheltered IRA, you could continue to grow it and only distribute to yourself the minimum amount required, or perhaps a bit more here and there as suitable.