All Forum Posts by: William W. Humphrey

The "mechanics" of it are that you transfer (no tax or penalty) your IRA to a provider like us that handles real estate as an investment for IRAs. You and your real estate team find the property that you want your IRA to purchase. (We do not give tax, legal, or investment advice; you, the account holder, make the investment and strategy decisions.) Your IRA makes an offer and subsequently closes on the property. Your IRA makes money from that property's rental proceeds as well as the possibility of appreciation instead of stock or mutual fund dividends and increases in value.

Hello Robert,  Keep in mind that the IRS allows tax-advantaged retirement fund money to buy and hold real estate.  So, if you are under 59.5 years old, you may want to consider the account itself purchasing a property (with debt it sounds like) in comparison to distributing your retirement account and likely facing the early withdrawal penalty.  Our headquarters is in between Denver and Boulder if you would like to drop by for some information.

If you are "self-employed", it is worthwhile looking at a SEP IRA or Solo 401(k). The plus part of these accounts is that you may be able to get a large part of that $100,000 into a tax deferred vehicle. The negative part would be that you have some limitation getting the money without penalty until you are 59.5 years old.

A couple of other long term strategy thoughts.  If you qualify for an HSA, it is an incredible tax tool.

At the moment Roth conversion rules would allow you to make a max contribution to a SEP IRA for instance and then convert that whole amount to a Roth.

If you plan on wanting the money before 59.5 years old, perhaps research a 72t strategy to know what your options are.

Keep in mind that your S-Corp. may be able to adopt a Solo 401(k) plan.  If you choose a plan document that allows for it, like the one we offer, you can make Roth Contributions as well as "pre-tax".  Unfortunately, the existing Roth would have to stay separate, but if your overall financial strategy is to employ Roth and Traditional tax strategies, the Solo 401(k) may be a good choice.

UBIT rules for IRAs come largely from rules that apply to non-profits. For IRAs, UBIT may need to paid to the IRS from the IRA itself in a few scenarios.

1. If your IRA uses debt to secure a property, the net profit associated with that year's average debt percentage may incur UBIT if that profit is more than $1,000. (the income is called UDFI - Unrelated Debt Financed Income)

2. If your IRA sells a property that still has outstanding debt on it, UBIT may apply to part of the profit.

3. If your IRA owns an ongoing, revenue producing business that is not "housed" within a C-Corp. or other taxable entity, then the business tax is paid at the IRA level in the form of UBIT. (the income is called UBTI - Unrelated Business Taxable Income).

Broadly speaking, Solo 401(k)s do not have to pay tax (UBIT) on UDFI, but, generally, would pay tax (UBIT) on UBTI.

You may want to consider buying real estate with a tax-advantaged account like a Traditional or Roth IRA. In that way, you have the ability to generate real estate returns that are tax-deferred or tax free depending on the account type that you use.

For most of our account holders at New Direction IRA, the criteria that they look for regarding a provider and their IRA lending strategy are these:

- Can my IRA's borrower make payments online?

- Can I reach someone on the phone when I have a question?

- Does the IRA provider have the capability to handle my IRA if it wants to extend a line of credit?

- And of course IRA fees.

Let us know if we can provide further detail.

With solo 401(k)s,  the plan document itself is critical because it will determine features like whether you can make Roth contributions, make a personal loan to yourself from the plan's assets, which assets you can buy and sell, etc.  

Also, you may want to think about periodic restatements.  If you have an attorney draft a plan, they will likely charge you again when the plan needs to be restated.  You can adopt a solid plan that gives you the greatest flexibility of features and includes the restatement process for only a few hundred dollars a year.

I would add that you may want to go with an IRA provider that handles a wide variety of assets (some don't handle certain types of investments) so that you can adapt to market conditions for years to come. Also, if you are going to have your IRA buy property, you may want to compare online features for IRA-owned real estate. Each provider has a different suite of tech services (e.g. free online bill pay for your IRA-owned property's expenses).

We have a number of account holders who are working with $20K.  

Lending tends to be the most prominent. IRA loans can be originated or purchased from someone else (e.g. non-performing notes that are being sold at a discount). Of course, you, the account holder, gets to choose whether collateral is attached or not.

These days there are several online asset providers (not necessarily "Crowdfunding" which is a term that has gotten pretty murky at this point) who offer lending and/or equity based participation in real estate ventures, some of which have a low entry threshold.

Real estate can be purchased by your IRA using debt. You can put this type of deal together yourself, or you can go to a turn-key real estate provider.

Did you know your IRA can even get a non-recourse hard money loan? It can, and some of those lenders will loan in the neighborhood of 90% of the ARV.

Options on real estate are allowable.

Your IRA can be a wholesaler which often can be achieved with a low cash amount.

It is common for an IRA to be a tenant-in-common with other investors on a property. The other investor(s) can be almost any person, IRA, HSA, or entity (like an LLC).

Becoming familiar with Disqualified Person rules and Prohibited Transactions will help you to refine your desired investment strategy.  

Let me know if I can be of further assistance.