All Forum Posts by: Brian Eastman

@Ivan Chirolla

This is not a black and white matter, and would be best addressed by speaking with an ERISA Tax attorney.

Technically, a parent in-law is not a disqualified person to an IRA. However, their child / the IRA account holder's spouse is a disqualified person to the IRA.

IRS rules stipulate there may be no direct or indirect transactions, benefit, or extension of credit between an IRA and a disqualified person.

An example of a potential pitfall would be if the parent-in-law were to pass, and the spouse now inherits their estate - and thereby an interest in the loan to the IRA.

If the willingness to lend or the terms of the note are well outside standard lending parameters, that could be viewed as a potential benefit.

So, possible?  Yes.  Entirely risk free... not so much.  Caution is advised.

@James Meyer

As a realtor you would be classified as self-employed and therefore eligible to sponsor a Solo 401(k) - assuming you do not own or control any other business that has employees.

Your employee deferrals are capped at $23,000, or $30,500 if you are over age 50, across all plans you participate in.  If you are maxing out with the W-2 associated plans, your Solo 401(k) would be limited to accepting employer profit-sharing contributions based on your real estate commission earnings.

There are several solid professionals who specialize in Solo 401(k) plans here on BP.  Get on the phone with one and see what your situation may allow for and whether there will be a benefit.

@Ray Slack

Great to hear your Solo 401(k) is doing well in real estate.

You should consult with your licensed tax advisor about your Roth strategy.  There are many benefits to a Roth, but factors like age, income, when you will need the money, etc. factor into whether the Roth will produce better outcomes in your specific situation.

If you are maxing out your Solo 401(k), you may make too much income to separately contribute to a Roth IRA. Be sure to check that detail.

The Solo 401(k) has solid Roth features for both contributions and conversions, so you should be able to pursue any strategy you come up with within the Solo 401(k) plan.  You just need to track the tax-deferred and Roth money separately within your plan.

@Joel Adams

IRS rules prohibit any direct or indirect benefit between you and your IRA. For your IRA to step into a deal on a property you already own personally would almost surely be viewed as such a benefit.

@Dana Fisher

Part of the services around the IRA LLC program include keeping the LLC compliant and registered with the state of Colorado. Both Rocket Dollar and Solera's plan services division are taking care of that.

The tax reporting is and always has been done by Solera. That is part of their role as the IRA custodian. Rocket Dollar has facilitated the process of getting the fair market value for the LLC that is needed for Solera to issue IRS form 5498.

I must lead with the fact that I have a bias here. My firm Safeguard Advisors has a close partnership with Solera similar to what Rocket Dollar had in the past.

This is a pretty clear cut case. Solera is an FDIC insured and federally regulated bank and IRA custodian. Rocket Dollar is a firm that markets and supports plan entities, but they do not hold funds or provide IRA reporting. Solera holds the crucial roles for your IRA, and is the backbone for a firm like Rocket Dollar to provide their layer of services.

As an IRA custodian, Solera is one of the best in the business. They check all the boxes on the regulatory front, and provide friendly and responsive support to their clients. They also offer a range or services to the "provider" layer of firms such as Safeguard Advisors and several dozen other companies that provide the plan formation and consulting support for checkbook IRA plans.

We are very familiar with many of the custodial providers in the self-directed space. Solera has earned our business and trust because they have the best offering. I believe you can rely on Solera to take great care of your plan going forward.

@SHANELLE SHERLIN

Unrelated Debt-Financed Income is taxable to an IRA. UDFI is the percentage of income that an IRA receives as a result of non-IRA money in the deal.

In your case, the deal is 80% debt financed.

Your IRA is a 50% partner in the deal.

Therefore, 80% of the 50% share of income that your IRA receives is taxable UDFI.

Your IRA will then be able to use that same ratio - 80% of it's share of allowable deductions like depreciation, interest on the note, etc. The IRA is also provided a $1000 exemption.

The net tax will not be that big a deal. A few hundred dollars a year most likely. The gain on sale will also be taxed and that could be a bigger dollar number, but will not be a significant reduction in the net ROI for the deal.

The bottom line is that the IRA is receiving income due to the presence of non-IRA capital in the deal. That portion of income is taxable. However, the IRA is still receiving the benefits of leverage and a higher net cash-on-cash return than if it had engaged in the same transaction on an all cash basis.

The bigger issue is that this is a complex strategy that requires having a knowledgeable CPA on your team. You do not need to find an IRA specialist. They are few and far between. Any CPA who regularly works with non-profit and tax-exempt entities like churches and charities should be able to help you.

It may be more complex than a $30K investment merits.

Also.  The loan will need to be non-recourse.  Expect more like 40% down payment requirements.

@David Mcginnis

Most syndicators have no idea how UDFI impacts any IRA investors in their deals.

I recommend IRA investors use that as a barometer of the operator's sophistication.

If they think that an IRA can take advantage of accelerated depreciation - which it cannot - are they really on top of their game and worthy of your IRA's investment?

Truthfully, the syndicator should probably not be getting that far into the weeds. But, they absolutely should have a CPA on their team/in their referral circle who can speak to potential IRA investors intelligently on this topic of concern.

Depreciation recapture is separate from debt ratio calculations, but the two interrelate.  On that matter, you would want to seek out a CPA to assist you with a more nuanced answer.

@Angie Menegay

You cannot directly or indirectly buy a property from your IRA. That is a prohibited transaction.

After age 59 1/2, you can distribute the property from the IRA to you. Since it is a Roth IRA there will not be taxes, but you will be depleting your Roth IRA for this purpose. That is probably not the best use of your Roth IRA.

That would potentially be possible. You would need to ensure there are no direct or indirect transactions or provision of benefit between the IRA's and disqualified persons. That would involve a very strong firewall between any existing activities with the other two partners.