How to transfer RE into Roth

[Mary Jay]

Hi guys, I might be confusing something...

But if I understood correctly, it is possible to transfer from IRa that contains real estate into Roth that will contain real estate?

Is that true? Or I misunderstood?

What kind of IRA should it be? Probably self directed IRA? And what kind of Roth account should it be?

Is it even a possibility?

Thank you

[Bob Norton]

@Mary Jay I'm not a fan of putting real estate rentals in an IRA. Real estate rentals are a tax shelter already. If you put them in your IRA you lose their tax deduction benefits. Use your self-directed IRA funds for higher taxed activities related to real estate, such as lending, wholesaling, or occasional flipping.

With that being said, I would recommend that you keep your exiting rental in your pre-tax IRA and when the market is right, sell it for a gain. Then, you can move your funds from your pre-tax account to a Roth account in smaller amounts over time to lessen the taxes on conversion. As @Bill Exeter has pointed out, if you move the property from your pre-tax account to a Roth account, you will owe taxes on the fair market value of the property.

@Daniel Dietz You are correct that the value of your equity is what you are transferring. However, if you attach a loan to a property that you have in your IRA, you may have a taxable event. You also need to be careful that you are not entering into a prohibited transaction (which would be catastrophic). And a property with a loan attached to it within your IRA/401k will then be required to pay unrelated business income taxes (UBIT) on the earnings from your rental until the debt is paid off. This is an advanced strategy that should only be used after discussing the pros/cons with your tax advisor.