ROBS - Self Directed IRA - ROBS?

Question

I've been brainstorming on the best way to leverage my employer 401k to scratch out a living.

I know there are limits on what you can do with each type of approach when utilizing retirement money. A ROBS is good to make an income but bad for holding property where Self Directed IRAs are good for holding property but you can't get paid.

So here's my question: Can I use a ROBS to purchase and renovate property (allowing me to get paid to run the project) then sell the property from the ROBS to a Self Directed IRA and then have the Self Directed IRA hire a second ROBS to manage the property (and allow me to get paid to manage the property)?

In other words: ROBS1 (fix and flip) sells to Self Directed IRA (to hold) who hires ROBS2 (to manage property).

I was thinking this might work as ownership of the property remains within the retirement accounts and I don't directly benefit from the renovation or sale of the property but allows me to get paid for managing the assets within the account.

Yes/No/Sketchy Maybe?

Brian Eastman · Answer

@Micah Starbuck

You cannot do what you propose.

If your 401k is with your current employer as it sounds, it is not even eligible to be moved in most cases.

A ROBS does work for active real estate development such as flipping, assuming a viable pace of turnover such as at least 2-3 properties per year.

An IRA could not purchase property from you or a company you own, which is the deal killer for your program. The other issue is that if the ROBS owns the property, how do you release the cash to rollover to an IRA, but that point is really moot.

JD Klein · Answer

Trying to figure out a 20 year plan to use a ROBS or SDIRA to invest and hold RE. My ROBS/C Corp just sold a franchise. Now I have capital to invest. Here's what I've learned lately. Again - trying to think about a 20 year plan...

ROBS/C-Corp - double taxation, no step up basis, model relies on moderate future tax rates, cost of capital and 1031 BUT - the C Corp CAN obtain financing - should I just buy a property a year, cash out REFI, 1031, plan on never selling?

vs

SDIRA - no self dealing/more restrictive in my participation, more favorable tax structure BUT - the SDIRA CANNOT obtain financing, I'd need seller fin or just pay cash. Lose out on leverage.

Are there any cases where people just accumulate property over 15-20 years in a C Corp? How do they exit, or is it just a bag of flaming taxes at some point?

JD Klein · Answer

Trying to figure out a 20 year plan to use a ROBS or SDIRA to invest and hold RE. My ROBS/C Corp just sold a franchise. Now I have capital to invest. Here's what I've learned lately. Again - trying to think about a 20 year plan...

ROBS/C-Corp - double taxation, no step up basis, model relies on moderate future tax rates, cost of capital and 1031 BUT - the C Corp CAN obtain financing - should I just buy a property a year, cash out REFI, 1031, plan on never selling?

vs

SDIRA - no self dealing/more restrictive in my participation, more favorable tax structure BUT - the SDIRA CANNOT obtain financing, I'd need seller fin or just pay cash. Lose out on leverage.

Are there any cases where people just accumulate property over 15-20 years in a C Corp? How do they exit, or is it just a bag of flaming taxes at some point?

Helen De la rosa · Answer

@Micah Starbuck

Call your 401k administrator to see if they allow 401k loan and the interest rates, terms etc. Some will allow $50k loan with no limit on how you use it. Pp

Helen De la rosa · Answer

@Micah Starbuck

Call your 401k administrator to see if they allow 401k loan and the interest rates, terms etc. Some will allow $50k loan with no limit on how you use it. Pp

Brian Eastman · Answer

@Micah Starbuck

You own & control the ROBS corporation for which you retirement plan is a shareholder. That corporation would absolutely be a disqualified party to your IRA. There are really about 20 different holes in this theory and I just hit on the most major one in my prior post. Let it go. This is my field of expertise and I can tell you with 100% certainty there is no "angle" that will achieve what you are looking for.

You can either setup a ROBS and truly operate an active business. Just one flip and not property management to yourself would not qualify to establish and maintain the ROBS structure. Think 3+ flips per year or providing property management to 5+ non-related property owners.

You can setup a SDIRA and invest passively and at arm's length in things like rentals or private lending exclusively for the benefit of the IRA.

There is no intersection or middle ground between those two options. The two entities can never transact with each other and any asset ever held by one entity can never be transferred to or serviced by the other.

Micah Starbuck · Answer

@Brian Eastman

Thanks for the info. I'm planning on leaving my current employer at some time in the future to open up those funds.

With regard to the release of funds, I wouldn't be putting 100% of the 401k into the ROBS. A portion of it would be used to purchase and renovate, then another portion would be used to purchase from the ROBS and then another portion would be used to start the property management.

You say that this wouldn't work because the IRA is not allowed to buy or sell with me. But at no time would I own the property or benefit from the transactions as an individual. All money would be transferring between the IRA and SCorps which seems like should be allowed since it's all still trapped within the pre-tax shelter.

My only benefit would be the income I collect from the SCorps as an employee which is allowed (within reason) by the IRS.

Carl Fischer · Answer

@Micah sta

@Micah Starbuck not really possible as @Brian Eastman Look at 72t distributions if you want penalty free income earlier than 59.5.

ROBS -> Self Directed IRA -> ROBS?

ROBS -> Self Directed IRA -> ROBS?

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