All Forum Posts by: Brian Eastman

@Jordan Lassiter

Self-directed IRA plans are handled by specialty firms. If you call Vanguard or Schwab (etc.) and ask about real estate lending from an IRA, you get a blank stare. It is simply not part of their services and therefore not part of their training.

Who is the direct family member? You and your business would be considered a disqualified person to her IRA if this person is lineal family like parents, grandparents, children, grandchildren, or the spouse of a descendant. In that case, her IRA could not lend to your venture.

If she is not one of those people, then she can setup a self-directed IRA and lend to you from her IRA.

@Michael Garrett

A partnership LLC such as you describe is definitely not a do-it-yourself endeavor. Please get an attorney to help you. It may save your relationship with your sister.

There are many more concerns than just having an entity and being able to sign that you and your partners should be discussing with qualified counsel.

@Chris Seveney

IRA and 401(k) plans are both types of trusts. They are specialized retirement savings trusts established per IRC sections 408 and 401.

We typically recommend on a W-9 that a classification of "other", with a description of either IRA or 401(k) be used. While "trust" is not entirely incorrect, it is not as accurate a description.

@Chris Seveney

I suspect the person you spoke with either mis-spoke or perhaps you mis-heard.

Neither an IRA or a Solo 401(k) would be considered an irrevocable trust. The employer and/or plan participant has the authority to alter or terminate (revoke) the trust in both cases, such as by closing the plan (subject to terms of distribution or rollover) or changing beneficiaries. In order for a trust to be irrevocable, it may not be altered after inception other than by the death of the grantor.

There are certain estate planning tactics where an irrevocable trust might be named as a beneficiary of an IRA or 401(k).

@N Martin

During a divorce, retirement assets can be split.

The divorce settlement will result in a "Qualified Domestic Relations Order" (QDRO) that documents the fact that a portion of your 401(k) value will be allocated to your ex-wife.

She could move the property to her own 401(k) or IRA tax free.

If she chooses to take the property personally, then it will be considered a distribution and the current appraised value of the house will be treated as taxable income.  The divorce situation and QDRO event will eliminate a 10% penalty that would normally apply on a distribution taken before age 59 1/2.

The transaction itself is somewhat complex.  Check with your plan provider and/or an ERISA qualified attorney for guidance.

@Rob K.

It is great that you have such a well performing asset building tax-free wealth in your Roth IRA.

I think you may be mixing apples and oranges in your analysis of investing with tax-deferred funds. All income to a traditional IRA has the same tax treatment and any earnings will be considered regular income when distributed - whether from stocks or real estate. The question is not whether property in a traditional IRA will out-perform the same property invested in personally. It probably will not since real estate is tax-favored in the after-tax world. The more appropriate question is, "Will a property in a tax-deferred IRA help you protect and grow that IRA better than investing the IRA in something else like stocks or funds?". For someone who understands real estate, the answer will generally be a resounding "yes".

@William Luke Laity

It is possible to flip/wholesale properties using a self-directed IRA, but there are challenges to executing such transactions inside the IRS rules. The main take away is that the occasional transaction of that sort would be OK, while a focused strategy of using your IRA in that manner on a repeated basis will not likely work out.

The first issue is involvement. Wholesaling takes a lot of hustle. You, as a disqualified person to your IRA cannot benefit from or provide benefit to the IRA.  If you are putting hours of your own time into marketing and digging up deals, you could be viewed as providing services to your IRA.   If you go to an auction and buy a house using the IRA, or have someone bird dogging properties and occasionally your IRA decides to pick up a deal that can be quick-turned, that is a less involved approach.

The second issue is that when an IRA engages in a trade or business on a regular or repeated basis, the gains are taxed as Unrelated Business Taxable Income (UBTI). This tax is designed to protect tax-paying businesses from unfair competition. Quick turning properties is a dealer activity and considered a trade or business if it is done with frequency.

Better strategies for an IRA will be more passive, both in terms of your involvement making deals happen and in the type of income produced. Buying a property at discount and holding it for rental at least a year before selling produces passive rental income and a passive capital gain, both of which are fully tax sheltered to the IRA. Being a transactional lender to wholesalers or a rehab lender to flippers both produce passive interest income.

There are plenty of ways your IRA can invest in real estate without running afoul of IRS rules. It just takes some education to hone in on the right strategies for the network and opportunities you may have.

@Tyler Speelman

@Chris Seveney has summed it up nicely.

The internet will tell you yes.  A professional will tell you maybe, but probably best not to go there.

IRS rules prohibit any direct or indirect benefit between a plan and a disqualified person.  You are #1 on that list, which also includes lineal family, family owned businesses/entities, and certain fiduciaries or business partners.

If you can invest at or above the minimum in a syndication and separately your plan can also invest on its own at a threshold above the investment sponsor's minimum, then those are clearly two separate investments and there should be no issue.   

If, however, you need to pool the resources to meet the sponsor's minimum, you are now creating a benefit by enabling one or both parties to participate in an investment they could not otherwise through access to funds belonging to a disqualified person.  The IRS could determine that is a self-dealing prohibited transaction and the entire IRA would be deemed distributed and taxable.  

@Ivan Lopez

There are specialty lenders that offer non-recourse loans to IRA/401(k) investors in all 50 states.

@Ivan Lopez

If you are still serving, you cannot rollover your TSP to an IRA.

Once you separate from service, you will have the ability to rollover the TSP to a retirement plan of your choosing.

With a self-directed IRA, you can joint venture with other investors or us non-recourse mortgage financing to extend your purchasing power. You cannot combine IRA funds and personal or close family funds for investing. The IRA is the investor, not you, and you need to keep personal and IRA finances very separate to retain the tax-sheltered status of the IRA.