Roth IRA trick from Ron LeGrand

[Adriea Herndon]

Hi everyone. Im thinking about signing up for a Ron LeGrand teachings. In this specific lesson he teaches how to use your IRA to buy real estate with no money down is this true? I tried looking some things up and google says I can use a backdoor IRA, is this what he's talking about? It's one of the only reasons I'm considering buying the class, so any help would be appreciated.

[Brian Eastman]

@Adriea Herndon

Here is the other big issue with this "trick", and why real estate gurus should generally be approached with great care whenever they start talking about self-directing IRA and 401(k) funds.

Wholesaling is not a good strategy for IRA funds for two reasons:

1) Wholesaling generally involves a lot of hustle. IRS rules strictly prohibit you from adding value through the provision of goods or services to your IRA. While you can certainly administer investments with activities such as executing contracts, paying expenses and receiving income into the plan, you put your IRA at great risk if you are out doing all the necessary marketing and deal-chasing activities that wholesaling entails.

2) Wholesaling is a dealer activity and therefore subject to taxation on Unrelated Business Taxable Income (UBTI) if conducted on a regular or repeated basis. UBTI can generate tax rates topping out at 37%. Self-directed IRA's are designed to receive passive income such as interest, dividends, rents, etc. They are not designed to be operating businesses and are taxed when they start acting like businesses so as to protect tax-paying businesses from unfair competition.

Of course, these considerations are never mentioned, and there is always the disclaimer; "We are not providing tax or legal advice.  Please consult with licensed counsel."  Most of these gurus know very well they can get folks excited and seeing $$$ and that real diligence typically goes out the window in the frenzied rush to get started yesterday.