All Forum Posts by: Brian Eastman

The proposed legislation will harm average investors.  We are recommending that the investor community actively reach out and advocate against these changes.  The following blog article outlines the issue and provides resources to make your voice heard.

https://www.biggerpockets.com/...

The investor community needs to actively advocate against this proposed legislation.

The following blog article explains the issues and provides resources to have your voice heard.

https://www.biggerpockets.com/...

@Evan Loader

The proposed legislation is problematic, to be sure.  We are recommending advocacy to have this language removed from consideration.

https://www.biggerpockets.com/...

@Jason Malabute

If the 401(k) is with her current employer it is likely locked up in that plan.

If it is a 401(k) from a previous employer, she could explore rolling it over to a self-directed IRA or Solo 401(k) plan. These are tax-sheltered retirement plans just like at a brokerage, but with different plan architecture that allows for plan investments in alternative assets like real estate, stock of privately held companies, cryptocurrency, etc.

There is a lot of great info on the topic here on BP.

@David Kelly

Thank you for chiming in, but the information you provided is not relevant to the question posted by @Ross A.

He is considering having his IRA purchase investment property. The IRA would be the property owner and the borrower.

@Ross A.

When your IRA borrows, special considerations apply.

The debt instrument must be non-recourse, meaning no personal guarantee from you. As a disqualified person to your IRA, you may not pledge your assets as security for the IRA's debt. A handful of lenders offer such loans nationally, including:

First Western Federal Savings, SD

North American Savings Bank, MO

Solera National Bank, CO

Titan Bank, TX

When an IRA uses debt-financing, taxable income referred to as Unrelated Debt-Financed Income (UDFI) is generated. The tax impact is generally negligible, and will represent a dent in the increase in return that leverage produces. You will want to discuss the topic with your IRA provider and/or licensed tax advisor to ensure you understand the impact and administrative process involved for your IRA.

@Amit Gupta

You absolutely may not do that.

IRS rules prohibit any direct or indirect transactions or provision of benefit between an IRA and a disqualified person. How the deal is structured does not matter. The end result is you renting from your IRA, which is clearly disallowed.

@Mike S.

A Solo 401(k) is not entirely exempt from UDFI, but does have a narrow exemption from tax on debt-financed income when the debt is used for the acquisition of real property.  In a properly structured syndication, this exemption will apply.  

So yes, using a Solo 401(k) to invest in multifamily syndications is simpler than using an IRA - for those investors who legitimately qualify for a Solo 401(k). We see a lot of folks trying to wedge themselves into a Solo 401(k) in order to save a few hundred dollars in taxes per year in an IRA and that does not make sense.

@Julian Sanchez

If by "one of our syndications" you are referring to a deal where you are a GP (or part of a team that is teh GP) then your IRA cannot participate.

An IRA is tax sheltered. To retain that tax-favored status all investments must be at arm's length and may not directly or indirectly intersect with you or other disqualified persons.

If you know and understand an asset like multifamily, you can setup a self-directed IRA and invest in deals sponsored by others.

@Paul McHale

This should not be difficult. Work with your plan provider to get a better grasp of the language.

An LLC is an LLC, whether owned by a person, persons, other business entity, trust, or IRA.

That said, Solera National Bank in Denver, CO specializes in self-directed IRA banking and will slam dunk your account setup.