All Forum Posts by: Brian Eastman

@David Krulac 

You can roll a tax deferred IRA into a 401k. You cannot roll a Roth IRA into a 401k, even if the 401k has a roth component. Perhaps that is the issue.

Here is the IRS rollover chart:

http://www.irs.gov/pub/irs-tege/rollover_chart.pdf

@David Krulac 

One can in many cases roll IRA funds into a 401k. Not all 401k providers will allow for this, but a Solo 401k certainly would.

@Michael Saberniak 

A SDIRA or Solo 401k is absolutely not pointless. The tax situation is different relative to real estate investing with non-qualified funds, indeed.  But, as @James Pignataro indicated he already has significant IRA capital. Comparing investing that IRA in the stock market vs real estate is the question being asked. I think you would agree that someone who understands real estate investing can do a lot better growing that tax sheltered retirement savings investing in what they know.

@James Pignataro 

There are great opportunities with a self directed IRA and many providers you can work with. There is a lot of good information on BP in the blogs and forums that would get you started on your research. There are two different business models: having a custodian (they have the word "Trust" in their name) hold the account and process all transactions, or working with a legal or advisory company that will have a custodial IRA at the back end invest into a LLC that you can manage and control under the umbrella of the IRA. Depending on your strategy and goals, either can work but it will become clear pretty quickly as you do your research which model will work better for your needs. Generally speaking the IRA LLC (or a similar Solo 401k program) will work better for higher transaction activity and tight timelines.

Be sure to speak with several providers.  You'll figure out who knows what they are doing and who is just marketing plans.

And yes, as has been pointed out, this is a niche service. The big firms control 97% of IRA money and focus on wall street only. Non-traditional asset investing requires special staff training and knowledge, and the big firms choose not to run a special division to handle this. Self directed investing has been available since the 1970's when IRA's were created, but have generally been the domain of smaller, specialty service providers. The nice thing is that since you are not dealing with the huge firms, you can actually get some really friendly, personalized service. Refreshing, no?

Best of luck as you continue your research.

@Eric Black 

Please go back and read the original post. It was very clear that @Damian Baynes is inquiring about using a self directed IRA to purchase the property - not cash out the IRA to make a down payment and purchase the property personally.

In the context of his question, my information is 100% accurate.

I'm not out to discredit you in any way, but it was clear to me that you mis-interpreted what Damian was asking, and I wanted to be sure that forum readers were not misled as a result.

Call any one of the major IRA trust companies, call @Dmitriy Fomichenko , call your tax attorney... they will concur with what I have written.

@Damian Baynes 

As with all taxes, there are details and complexities specific to an individual's situation that apply, so you definitely want to consult with your tax advisor....

That said, the basic concept is as follows.

The amount of acquisition indebtedness used determines the debt-financing ratio.  Say 50% in my example above.

50% of the gross income produced by the property is therefore exposed to the tax.

You then apply 50% of the normal deductions like depreciation, payment on the note, real estate taxes, etc. to reduce the net taxable amount.

The final net taxable amount is run through the IRS trust tax table to determine the amount owed.  

The tax is reported by the IRA on form 990-T and paid with IRA funds.

This topic is covered in IRS publication 598.

@Eric Black 

Unfortunately, I must insist that I am correct.

Self Directed IRA plans have been my business for 10 years. I work very closely with a tax attorney & CPA who have been around this topic for 20+ years. When it comes to ERISA law, we have it covered.

The IRA may purchase property in it's own name (or via an IRA LLC), and this is not deemed a distribution. The IRA may use leverage. So long as the loan is non-recourse, there is no impact on the tax-sheltered status of the IRA.

We're one to walk into Bank of America or Wells Fargo and obtain a loan in their own name, then yes, that would create issues.

@Eric Black 

I'm sorry but you are mistaken or mis-interpreting @Damian Baynes 's question.

As Dimitri indicated, an IRA may use leverage such as a mortgage. The IRS rules prohibit you from pledging a personal guarantee on your IRA's debt, so the loan must be non-recourse - meaning the property is qualifying for and guaranteeing the loan, not you and your credit.

There are a handful of lenders who specialize in such programs for IRA and 401k plans. they typically want 35-40% down and 10% cash reserves. Rates range from 4.75% - 6.25% currently.

The use of leverage exposes an IRA (but not a 401k) to taxation known as UDFI that is paid by the IRA. On a $100K property with a $50K loan, producing 10% cash flow, you'd expect about $400-450 in annual taxes, so a small bite.

The smart use of leverage in your IRA can help you to be more diversified and obtain higher cash-on-cash return for your IRA dollars though the use of other people's money. It is a powerful strategy.

@Rav Ram 

I do not have any specific references for you.  This is typically the domain of commercial real estate.  You might also contact a 3rd party note servicing company.

@Rav Ram 

Call an attorney

Call an attorney

Call an attorney

You need to protect your 401k from IRS exposure. You need to ensure the loan is compliant with California lending law.  You need to ensure you would have properly documented enforcement mechanisms to protect your investor in the event of a default or should something happen to you.

Not spending a few hundred dollars to do something correctly, when the cost of incorrect execution could be tens or hundreds of thousands of dollars is just plain foolish.

@Cory Adams 

Moving funds between banks within a 401k is not at all like a rollover.

It sounds to me like you are thinking you can use those funds for your bridge loan, and that would be a prohibited transaction.

Speak to your plan provider and or your attorney before you fry your 401k savings.

@Cory Adams 

A rollover is a form of distribution.