You Asked, We Answered: Investing with Self-Directed IRAs
From: www.theentrustgroup.com
Q: Can I transfer real estate property held in a Solo 401(k) into my self-directed IRA?
A: If you have reached one of the distributable events in a 401(k) plan, you can directly rollover the proceeds into an IRA. Below are typical distributable events found under the IRS website:
Employee elective deferrals (and earnings, except in a hardship distribution) — the plan may permit a distribution when you:
- Terminate employment (by death, disability, retirement or other severance from employment);
- Reach age 59½; or
- Suffer a hardship
Employer profit-sharing or matching contributions — the plan may permit a distribution of your vested accrued benefit when you:
- Terminate employment (by death, disability, retirement or other severance from employment);
- Reach the age specified in the plan (any age); or
- Suffer a hardship or experience another event specified in the plan. Distributions on the basis of hardship are not eligible for rollover.
Q: What types of real estate investments are allowed in a self-directed IRA? Can one own a rental property outside of the country?
A: There is no specific clause that defines what type of real estate can be held under an IRA. As long as there is no conflict of interest also known as a prohibited transaction, any piece of real estate can be held under an IRA. Better yet, even a property held out of the country.
Q: I am a real estate broker and I would like to find out if my clients can have partial property ownership in their IRA?
A: Partnering with other IRAs or individuals is allowed. Partnering with yourself is an industry accepted practice. Expenses and income must be proportionately divided based on ownership.
Q: Can you use your self-directed IRA to buy part of a home in a partnership with your own regular funds?
A: Partnering with yourself is an industry accepted practice. Expenses and income must be proportionately divided based on ownership.
Q: Can I manage rental property in the account and find my own tenants?
A: You may be able to. Howvwer, you may not be paid for that function.
Q: Is there any way to use a self-directed IRA to invest in real estate for the purpose of earning money today? Or must all of the profits go back to the self-directed IRA?
A: Although profits (rental income) must come back to the IRA, it may also be distributed at any time. However, it will be subject to tax and possible penalty.
Q: Am I required to take out required minimum distributions, if so, how it will work?
A: Traditional, SEP and SIMPLE IRAs are subject to required minimum distributions so the IRA holder must put into account a certain level of liquidity to satisfy the distribution, or else pay the 50% penalty.
Q: Is the money from the investment only used to fund your IRA & repay the borrowed money? Is there a way to pull some of the cash flow to pay personal bills?
A: Distributions from an IRA can be taken at any time. It will, however, be subject to tax and potential penalty.
Q: Can I have my IRA fund my LLC, and then have the LLC own the property? If so, then can you live in it?
A: Your IRA owned LLC does not make it allowable for the IRA holder to live in the property even if it’s under an LLC.
Q: Does the real estate have to be appraised yearly to establish reevaluation?
A: Although it’s the most conservative way to determine the value of a real estate owned by an IRA, most custodians only require it for transaction that involves taxation.
