Using a Self directed Roth IRA

[Terry Koepp]

I am looking to invest into flipping houses (all the work being done by other people) using my Roth IRA as a self directed account and have a few questions:

1) What SDRIRA management company would be best for this type of investment (lowest fees and best service)?

2) My understanding is that as long as I return all the profits back into the Roth IRA I do not have to pay any capital gains tax (or any other tax), correct?

3) Can I combine Roth Accounts (such as my wife's and Mine) for this investment? (one of the investments gives higher returns based on the amount invested).

4) Are there any areas to watch out for that can cause issues with this type of investment?

Thanks,

Terry

[Dmitriy Fomichenko]

@Jim Brown thanks for the mention!

Terry, to answer your questions:

1) There are few different options available. Custodial SD IRA would enable you to make the investments but all of the transactions must go through the custodian, which takes time and cost money. An alternative to that would be what is known as 'Checkbook IRA', in this case special purpose LLC is established which is owned by the IRA and managed by you. The end result is you have total (checkbook) control over your IRA. If you are self-employed, then there is even a better option available: truly self-directed Solo 401k, which does not require a custodian and nor the LLC to get the checkbook control. You need to decide which would be best for you.

2) If you invest with your IRA/401k - all of the gains, profits and cash-flow must go back into the account, you personally can't touch any of that. But if you engage in an unrelated business such as flipping, as Jim mentioned you need to be aware of the UBIT.

3) Under some circumstances this could be possible, be sure to discuss your particular situation with a qualified tax professional. 

4) You need to understand the prohibited transactions rules, all of the transactions involving your IRA must be 'arms length', you nor any other 'disqualified person' can not receive any personal benefits as a result of it and are prohibited from providing any services or do any work on the investment. 

Feel free to reach out to me to schedule a call to discuss the specifics.