All Forum Posts by: TJ P.

Thanks Chris, unfortunately the property was a new build and we haven't made any improvements. The area has not appreciated over the last 5 years and some finance fees were financed into it so we have not built up much if any equity.

I purchased a duplex in 2011 with a VA loan, both sides are now rentals love the property but as we are starting to get more serious about building a real estate profile, I am wanting to get this property under a LLC. I am assuming the only way you can go about that would be to refinance it under the company name. I have read many threads about refinancing out of a VA loan to a conventional loan and you would need 20% - 25% down, is that true if you are wanting to refinance into an LLC or would I be looking at closer to 30% down?

Hey @TJ P.

Third option that I just thought of but has a higher threshold for execution. If you have any self employment income, you can start a company (can be sole proprietorship, LLC, C Corp, etc.) and as long as you don't have any employees other than a spouse, you can set up an individual 401k. Unless you have a substantial amount of self employed income you wont be able to contribute much, but you would be able to roll over your current accounts into this solo 401k. The plus side is, just like a traditional 401k at a large employer, you can take a loan for up to 50% or $50,000 (whichever is less) of your balance as a 5 year loan at prime +1%. This option is freaking awesome because you can use this loan for anything, vacation, paying debt, a girlfriends shoe shopping habit, or even RE. You can borrow your down payment at a low interest rate, from your retirement account, and pay your 401k interest instead of a lender. Any property acquired with these funds would likewise be considered outside of the 401k and any rent would be yours to use as you see fit. You can also use conventional 80% financing as well. Like I said, a little more difficult to execute, but very beneficial to keep the money tax sheltered, but still have access without the IRA restrictions.

Also when you say time frame for returning funds to the IRA, I think you may have heard about what some people call a 60 day rollover. This is NOT something I would advise doing, and the IRS frowns on it at best. Essentially an indirect rollover consists of one institution sending you a check, usually for the total amount of your retirement account (IRA, 401K etc) in order for you to "rollover" those funds to another institution, by either endorsing and sending the check along to your new firm, or depositing the funds and making an equal contribution to another reitrement account. The IRS gives you a 60 day window to complete this "rollover". Some people, who are generally misinformed, think that this is a 60 day loan they can take from their IRA. This is NOT the case, and you should not use those funds for anything other than a rollover.

Hopefully that wasn't too much info

Adam

 Hey TJ,

I just want to clarify, if you are planning on converting all of your old retirement accounts into one SD IRA, you will be perfectly fine, and this is most likely the best way for you to handle a SD IRA account as the fees can be pretty steep.

Thirdly, any and all income from the property must be put back into the SD IRA, or it will be taxed as a distribution at earned income (+10% if you are under 59 1/2). So if your plan was to use the SD IRA money to start your RE empire, you may want to rethink using qualified funds.

Hope that helps.

Adam

Im no expert but rolling them into one single self directed ira seems like the best option. 

@TJ P. 

Good question. 

I presume that when you say investment loan you are referring to a promissory note, correct? 

I believe this is how it is categorized. If I use the monies in the IRA for the down, then it belongs to the IRA, correct?

If so, this can be accomplished either inside an IRA, or a self-directed Solo 401(k) if you do part-time self-employment activity. Note that you can have both a full-time job and a self-employed business on the side. The self-employed business would qualify you for a solo 401(k). Both the former employer 401(k) and the government plan can be transferred to the IRA or the solo 401(k). Following are the similarities and differences between the IRA and the solo 401k.

There was no self-employment. These are/were all employer plans. Wasn't sure if there would be issues rolling over or borrowing from the various types of plans.

• Both are subject to prohibited transaction rules;
• Both are subject to federal taxes at time of distribution;

Looks like it's self-directed for me. Though I have been studying this, I'm still concerned on the penalty/tax/fee repercussions. 

• In order to gain IRA checkbook control over the self-directed IRA funds, a limited liability company (IRA LLC) must be utilized;

Good to know.

• The self-directed IRA participant/owner may not serve as trustee or custodian of her IRA; instead, a trust company or bank institution is required;

And it appears there are money custodians to choose from...BP search forthcoming.

• When funds are rolled over or transferred from an IRA or 401k to a self-directed IRA, the amount deposited into the self-directed IRA is reported on Form 5498 by the receiving self-directed IRA custodian by May of the year following the rollover/transfer.
• Rollovers (provided the 60 day rollover window is satisfied) from an IRA to a Solo 401k or self-directed IRA are reported on lines 15a and 15b of Form 1040;
• The fair market value (FMV) of assets held in a self-directed IRA is reported on form 5498;
• At termination, the self-directed IRA is only required to file a form 1099-R.

So if I were to go with the self-directed, when and how much would I be taxed and/or penalized?