Buying Property With SD IRA

[Brian Troy]

I'm sure this has been asked before, but I could only find limited info looking through past posts. I am new, so please understand.

I'm 42 years old and currently have $100,000 in in my 457b and 401a. I will be leaving my current employer soon and need to decide what I will do with this money. I am considering a SD IRA with the hopes of buying a piece of property. My good friend lives in Northern California (I am in San Diego) and his neighbor is looking to sell some raw, untouched acreage at a great price. My intention is to leave the property as it sits until I retire and build a home. These are my concerns:

1. Can I visit the property? I know there are stringent rules in regards to using the property, but would visiting twice a year for a few days violate this restriction? I would not do any improvements nor modifications, only check things out and visit with my friend/neighbor.

2. Can I rent the property? Should someone want to use the property to park their RV and camp for a few days or a few months, would this be a violation if I reported and contributed 100% of the rental income back to the SD IRA?

3. What is the cost of setting up and maintaining a SD IRA? It seems to me my idea is pretty straight forward and wouldn't require much. I will only buy the land, report any income and that is about all until I am ready to build in 15 years.

Thanks for any input.

[Bryan Ellis]

Hi Brian -

Assuming that your retirement plans are of the "traditional" model rather than the "Roth" model, transferring them to a different type of plan is generally not a big issue. A self-directed IRA can work for that. However, if you have a qualifying small business, a self-directed solo 401k is a *much* better option in every way, in my opinion. Either way, I'm totally sure you can transfer a 457b to a SDIRA or a Solo 401k, and am relatively certain the same is true for a 401a. The IRS has a chart for this at http://www.irs.gov/pub/irs-tege/rollover_chart.pdf

The answers to your specific questions are:

1. Visiting the property probably isn't a problem, as long as you don't do anything to benefit from it. If all you're doing is going to check on it generally, with the more specific intent of visiting your neighbor, I suspect you'll have no issues whatsoever with this.

2. You absolutely can rent the property, but I'd strongly advise to have a 3rd party handle it for you, just so you take no chances of running afoul of any of the more esoteric. If your neighbor is unrelated, why not have them collect your rents?

3. SD IRA's frequently have a small upfront fee but have potentially sizable annual fees based on the size of the account (dollar value). A good self-directed solo 401k will cost you a few hundred dollars up front, but basically nothing else.

A self-directed retirement account is perfect for what you're looking to do...

Best,
Bryan Ellis