All Forum Posts by: Phil G.

I've never heard of an employer 401(k) plan that allows participants to invest in private placements.

I can have a self-directed 401(k) and I can vest investments in different LLCs that the 401(k) trust establishes, for the convenience of the trustee (me). They are single-member LLCs, where the only member is the 401(k) trust. They are manager-managed, where I, as trustee, would appoint myself manager. Since the LLC is single-member, it is a disregarded entity by the IRS and therefore the income is either tax-free or tax-deferred depending on whether the LLC was funded with Roth 401(k) funds or tax-deferred 401(k) funds.

The big question I would have is who would manage the LLC. The administrator of the plan or yourself and whether you could be the LLC manager as just a plan participant. Most CPAs and many tax attorneys don't have enough knowledge to deal with these types of issues. I would seek advice from an attorney who knows a lot about ERISA plans.

I think you would owe UDFI, as it's still indebtedness for the renovation of the property. UDFI would be based on the percentage of net income due to indebtedness. Basically, average indebtedness divided by property basis. The calculation is slightly more complicated on form 990T.

Based on the numbers above, the amount of tax would be pretty small and wouldn't stop me from doing the deal. If you begin earning on the property in 2014 and pay off the contractor in 2014, you'd only have to consider UDFI for the one year.

You definitely can't pay yourself and you can't do anything by yourself that increases the value of the property (sweat equity). Some advisors will tell you that tasks like mowing the lawn or sweeping a floor is permissible, but I would stay away from any maintenance.

Collecting rent, screening tenants, hiring contractors, etc. are widely considered permissible as ministerial duties. I wouldn't practically attempt any of these unless using an IRA LLC.

I work with Safeguard and they've always done right be me. I would recommend them.

Hi Sean-

Having your uncle transfer some of his money into a self-directed IRA and hold real estate investments is definitely doable. Since your uncle is not a disqualified person (unlike your parents, grandparents or children would be), this would not constitute a prohibited transaction.

Drop me a colleague request and I'd be happy to share the best ways to structure a deal depending on your particular circumstances.

IRA Services Trust (iraservices.com) is pretty decent for holding a single-member LLC and their fees are pretty reasonable, when you're using an LLC to conduct business.