Can I sell to myself???

[Nick Mcroberts]

Good morning everyone! So I'm thinking of leaving federal service and moving what I have in TSP into a self directed IRA in order to purchase some rentals. I understand that all the income generated by that property needs to go back into my IRA but in the future I'm going to want it to replace my W2 income. To do that would I be able to sell the properties to myself since they're technically owned by the IRA or if not what would that transaction look like?

Thanks very much!

[Ashish Acharya]

Originally posted by @Nick Mcroberts:

Good morning everyone! So I'm thinking of leaving federal service and moving what I have in TSP into a self directed IRA in order to purchase some rentals. I understand that all the income generated by that property needs to go back into my IRA but in the future I'm going to want it to replace my W2 income. To do that would I be able to sell the properties to myself since they're technically owned by the IRA or if not what would that transaction look like?

Thanks very much!

That is not allowed. 

Prohibited Transactions:

While the IRS does not dictate investment assets, it does have rules regarding whom an IRA may have transactions with. Breaking these rules will threaten the tax-advantaged status of the IRA investments and could cost the investor a lot of money, so the key guidelines should be reviewed.

An IRA may not have a "transaction" with or for the benefit of the following "disqualified persons":

• The IRA owner.
• The owner's spouse.
• The owner's ascendants (parents and grandparents).
• The owner's direct descendants (children and grandchildren).
• The owner's direct descendants' spouses.
• Certain fiduciaries (CPAs, attorneys, financial planners, etc.).
• Retirement plans held by disqualified persons.
• Any entity that these persons own or control.

“Prohibited transactions” include:

• Selling something the IRA owner already owns to the IRA.
• Buying something from the IRA.
• Being compensated by the IRA.
• Extending credit to the IRA.
• Having personal use of the assets in the IRA.
• Pledging the IRA to secure a personal loan.

The reasoning behind these rules is straightforward: They prevent any "funny business" with people attempting to create a non-retirement benefit from their investments or to pay non-market values for assets to rig deals to benefit their families. The bottom line is that disqualified persons are not allowed to derive any immediate benefit from the account, meaning, for example, they cannot live in or use real estate owned by the IRA.