Refi, putting equity in SDIRA, buying real estate & FAFSA

[Amy Yarnall]

We own a rental with $100k in equity. It is worth $220 and provides $400 per month cash flow income after mortgage,  expenses, etc.

We are also preparing to pay for college costs starting in 2020. 

If we were to refinance the rental to pull out the equity, could we:

1. put the equity in a self directed IRA?

2. Are there taxes due if we pull out the equity and put in IRA?

3. Is there a Roth Self directed IRA to avoid future taxes ?

4.  Could we then invest that equity into another house? 

5. Would the property bought by the SDIRA be considered an asset of the SDIRA? Aka not the same asset category as a rental home but an asset in the IRA, treated the same as the stocks in my 401k Roth IRA, &IRA?

Bonus question: 😁

FAFSA (federal student aid application) excludes balances of 401K and IRA, so if the real estate bought and rented out by SDIRA were an asset of the SDIRA, I am hoping the asset would then be excluded from the FAFSA calculation. Anyone happen to know if that is true for FAFSA?

[Dmitriy Fomichenko]

@Amy Yarnall welcome to BiggerPockets and congratulations on your first forum post!

You would not be able to put equity into an IRA. You can contribute to an IRA from earning income only, and the annual limit on contributions is $5,500. There should not be any taxes on equity that you pull out, this is a loan, you are not selling the investment. You can do whatever you wish with that equity, including reinvesting it into another property.

Yes, you can have a self-directed Roth IRA, but again, you can only fund it with new contributions (subject to annual limit) or by moving funds from another retirement account. If you converting pre-tax retirement funds into Roth this would be considered taxable event, be sure to consult with your CPA regarding tax consequences.