All Forum Posts by: Brian Eastman

@Kenneth Bentley "Self-Directed" is a very broad term and simply means that you, rather than a financial advisor, make the investment decisions for the account.

Most conventional brokerages like Fidelity offer self-directed IRAs, but they limit you to investing in what they sell, which is just the stock market.

A truly self-directed IRA is generally offered by a specialty firm that has the capacity to process transactions for alternative assets such as real estate. The IRA itself is the same with respect to contributions, distributions, reporting, and inheritance. The difference is the ability of the plan to be invested in a more diverse choice of assets, including real estate.

There are several quality providers of self-directed IRA services active here on BiggerPockets. Do a few searches in the forums and you will be able to identify who knows about this topic and can assist you.

@Brian Baker

A Solo 401(k) does offer a participant loan provision, but it is capped at the lesser of $50K or 50% of the plan value.  That probably would not help in this proposal.  It also seemed clear to me the goal was to get income from the project tax sheltered into the Solo 401(k), not access the 401(k) for capital to accomplish the deal.  The loan would only accomplish the latter.

The participant loan is typically at prime +1%, so not really the best investment for the plan, especially when you consider you are replacing the pre-tax dollars in the plan with post-tax dollars as you repay the loan.

The Solo 401(k) can be a legitimate tool to access a limited amount of cash to jump-start a personal enterprise.  From the plan perspective it is usually a wash or slight negative outcome.  You are typically better off investing the plan in something that earns better than prime +1% and letting the plan accumulate income tax-sheltered as it is designed to do.

@Willie Holdman

There is absolutely no means to accomplish what you are looking to do.  You are a disqualified person to your plan, and that disqualification extends to any entity you own or control.  Any direct or indirect transactions between a plan and a disqualified person create severe tax consequences.

Your Solo 401(k) can invest in rental property, but must do so in a way that has zero intersection with you or your personal enterprises.  The cost of the tax-sheltering afforded to the plan is that strict separation between the plan and your personal finances.

@Ria Gupta

There is no single answer.  Qualification, funding type, specific investment type and geography, and many other factors go into determining the correct format for a specific individual.  There are several quality providers of self-directed retirement plans active on Bigger Pockets who will be happy to help you identify the best plan for your needs. Get on the phone and you will learn quickly where to focus your research.

@James Ramos

As a plan provider, I cannot make a specific recommendation as to a company to work with per BP guidelines.

What I can help you do, however, is refine your question.

Self-directed IRA's come in several formats offered by different types of companies. The type of self-directed IRA that will best suit your situation and goals will drive the process of identifying the right firm to work with.

A self-directed IRA custodian is a processing entity. Think E*Trade or Fidelity with different paperwork. All IRA based plans are required to have a custodian to administer and report on the account. What makes a self-directed IRA custodian different is that they are not purely connected to the public exchanges and limited to investing in stocks, bonds and funds, but rather have the staff training and paperwork to document the IRA's investment in the more individualized transactions that occur when investing in real estate, notes and other non-traditional assets. Such custodians will hold funds, sign documents, issue expenses and receive income on behalf of your IRA and act as your processing layer. This works OK for relatively static and simple investments like a private placement or crowdfund, but can become rather cumbersome and expensive with a more time sensitive and transaction intensive asset such as a rental property. You also need to be aware that custodians are passive in nature and simply process transactions at your direction. They do not provide meaningful oversight or guidance with respect to tax code compliance.

A checkbook IRA LLC is an enhancement on the above structure that is generally more time and cost efficient for investors with a more diverse or interactive portfolio - such as rental property. It starts with a self-directed IRA held by a custodian, but the IRA simply makes one investment into a specially designed LLC entity. The IRA owns the LLC, but you can be the non-owner manager of the LLC and have signing authority. This allows you to directly manage transactions via the LLC and eliminates the paperwork, processing delays and per-transaction fees of the custodian. These plans typically cost a bit more to establish due to the legal work, but in most cases will save you considerably over the long term. With a quality provider, such plans also come bundled with meaningful consulting guidance to help you get the most out of the program while staying inside the IRS guidelines.

So, as you continue your research and get feedback here on BP, think about what type of program will best suit your needs and be sure to ask questions along that line. Get on the phone and speak with a few of the providers that are active here on BP. You will pretty quickly be able to tell who is just selling something and who can become a valuable member of your team.

@Lynne Cregar Hernandez

Be careful.  

The IRA is the property owner and will be the borrower. Any debt for the IRA must be non-recourse, meaning no personal guarantee from you.

I am not aware of a non-recourse lender that does HELOC loans, but there are several that will do a cash-out-refinance to free up equity in an IRA-owned property so the IRA can deploy that capital into another IRA investment.

Reach out to:

Solera National Bank

First Western Federal Savings

North American Savings Bank

@Drew Hoffos

Loans to an IRA need to be non-recourse, meaning no personal guarantee from you. There are few banks that specialize in this type of lending for IRA investment property. The leaders are:

www.solerabank.com

www.myiralender.com

www.nasb.com

www.titanbank.com

An intermediary would be viewed as a "straw man" by the IRS and they would look right through that in the event of an audit. They would still see the connection between you and your IRA, and call that a prohibited transaction.

@Michelle Le Mere

There is no such thing as a 60-day rollover on an inherited IRA. That money is now irrevocably yours.

In a non-spousal inherited IRA, you have to drain the account within a 10-year window. While an inherited IRA can invest in real estate, that short time span does create a set of challenges.

Go invest that money in real estate personally and feel blessed that your mother was able to leave you some capital jump start the process.  (not "screwed").

@Lance Dacy

UBIT only applies if the property is leveraged.

Why would you look for a property that performs poorly?  

I can make $2 and not pay taxes... or, I can make $10, pay $2 in taxes and still have $8 left over.   Last time I checked, $8 post-tax dollars is bigger than $2 non-taxed dollars.

I think you need to revisit this topic with your plan provider and CPA.