Self Directed IRA - Flipping Contract

[William Jenkins]

I need a little tax advice on the use of a self directed IRA to flip a contract. Here is the opportunity.....

I've got a property I am interested in purchasing.  I am fairly confident that I can flip that contract immediately to a fund that I work with and then have them close directly on the property.  I would be looking to execute an assignment with an assignment fee to be paid to me at closing.  

I don't have any experience with self directed IRA's (I am sure I can figure this out), but was more concerned with the tax ramifications of using a self directed IRA to flip a contract. If I can make it work, it would save me a substantial amount of taxes.

I would then plan on taking those funds (profit from the flip) and either (a) investing it in other self directed eligible assets (RE, LLC interests, etc.) or (b) transferring it back to a traditional brokerage firm and to simply invest it in equities.

Questions:

1. I wouldn't be opening this IRA for just this deal or flipping in general (may invest in longer term assets later on down the road), but would this transaction cause any UBTI to me personally? FYI... I am a broker, but not in the state that I would be buying this asset in. I don't think I would necessarily be considered an active participant.

2.  Any other red flags you can think of from a tax or legality standpoint?

If I go though with it, I will be seeking professional tax advice beforehand, but just wanted to get a feel for what others with experience in this have to say.  

[Justin Windham]

@William Jenkins

Sounds like you might have a good opportunity. If you can do this in a self-directed IRA or Solo 401k, it could be even better, assuming you don't need to income immediately. In addition to the excellent feedback you received already, I'll outline below some of the benefits of using a Solo 401k instead of a self-directed IRA in case you are eligible. I'd recommend contacting a few providers to get a better idea of your options.

• Compared to an IRA, Solo 401k contribution limits are roughly ten times higher.
• The Solo 401k will allow you to take participant loans while the IRA does not
• There is no custodial requirement for the 401k.
• You don't need the additional expense and administration of an LLC to have checkbook control.
• There is a built in-Roth component whereas IRAs are either traditional or Roth, not both.
• A spouse can also participate in the same Solo 401k plan. IRAs would require separate entities.
• The Solo 401k has additional tax benefits over an IRA when investing into real estate using leverage.
• The penalties for prohibited transactions are less severe, though it's best not to utilize this benefit :)