Legal/tax question regarding self-directed IRA

[Anja Brey]

Hello,

I have a defaulting promissory note in my self-directed IRA. I am about to short sale the property for a large loss. Ideally, I would close out the self-directed IRA and move the money back to an IRA brokerage account as it is not enough to do much with it and to avoid paying the annual fees on the account, but a law suit was filed and there might or might not be any money coming my way in the future regarding this loss.

My question is, do I need to leave the self-directed IRA open until the potential money from the law suit comes in, or could I move the law suit money into an IRA brokerage account as well?

My tax advisor didn't know the answer to this question nor did the Self-directed IRA company.

Any input? I would guess that I would need to keep the self-directed IRA open until the law suit is settled as the money is related to the defaulting promissory note.

Thank you for any input!

Anja

[Brian Eastman]

@Anja Brey

The asset is titled to your current IRA, i.e. "XYZ Trust Co FBO Anja Brey IRA".

If any settlement results from the lawsuit, it would need to be issued in that name.   

You could move the IRA to another institution, but would need to retitle and assign the asset. With a defaulted borrower being sued, it would be unlikely you could get the necessary signatures to accomplish that.

I suggest you work with your custodian to see if they can put your IRA into a "dormant" mode and reduce your annual fees. They may or may not do that, but it does not hurt to ask.