Is this a new concept? Why don’t more people know about this?

This is not a new concept. For years, private companies have been able to utilize retirement funds as a source of business capital. Most financial advisors and stock brokers, however, are not made aware of these options because these investments do not provide a sufficient profit for their institutions. Investment firms and stock brokerages do not want clients to move their funds outside of their companies where they would no longer be able to draw a percentage of your income.

Absolutely not! You are not taking money out of your IRA; Rather, you are investing it in another way. You are investing in the LLC and then the LLC is investing in Real Estate.

One of the many benefits of an IRA LLC is the ability to pool funds. Here are just a few account types you’re able to move:

Can I be the property manager for real estate held by my self-directed IRA?

If you have a “traditional” self-directed IRA then the answer is no. Using a Self-Directed IRA LLC, you can manage the property, collect the rent, screen tenants, perform general maintenance, and more. This can save your IRA hundreds of dollars each month and ultimately provide more investment capital for ongoing investments.

Can I mix personal funds with IRA funds to purchase a piece of real property?

Yes, if it is structured correctly. The prohibited transactions code prevents an individual from using personal or IRA cash to benefit the other. This can be easily violated through “formation issues.” If you are considering using your personal funds to invest in real estate with your IRA either through Tenant-in-Common or a Partnership Entity, consult with iDIRECT first. Do not be a test case for an inexperienced professional.

What is meant by “checkbook control”?

Checkbook control means that YOU are the signer of the checks. You have the ability to make the investment decision, sign the contract and then write the check for the investment. You are truly in control.

Is it legal to purchase non-standard assets such as real estate by using my IRA?

Without question! The Employee Retirement Income Security Act of 1974 (otherwise known as ERISA) essentially passed the responsibility of retirement saving from the employer to the employee. IRAs were created in 1975 to provide individuals a chance to direct where their retirement funds were invested. Rather than delineating which investments are allowed, the IRS code instead identifies which investments are not permitted under these laws. There are only two types of investments excluded under both ERISA and IRS Codes:Life Insurance Contracts and Collectibles (such as works of art, rugs, jewelry, etc). Refer to Internal Revenue Code Section 401 (IRC § 408(a) (3)).

Can my IRA buy real estate that I currently own?

Even though there are companies which claim you can, this is strictly forbidden under IRC § 4975. There are many great real estate transactions available, so do not put your retirement account at risk by engaging in a “self-dealing” transaction such as this.

Can I get a loan for property owned by my Self-Directed IRA LLC?

Yes. You will need to get a non-recourse type of loan. However, when you receive a loan unrelated debt financing income tax will apply.

If my brother is not a disqualified party, can I buy a house and let him rent it from me?

Theoretically, yes. Your brother is not a disqualified person. However if he occupied a rental property owned by your IRA and could not make the payments, you could run afoul of the exclusive benefit rule. This could cause your IRA to have participated in a prohibited transaction. It is important that you treat every investment the same, to benefit your IRA and only the IRA.

What are Prohibited Transactions?

An understanding of prohibited transactions is very important. The IRS defines a prohibited transaction as follows: “Generally a prohibited transaction is any improper use of your IRA account or annuity by you, your beneficiary or any disqualified person. Disqualified persons include your fiduciary and members or your family (spouse, ancestor, linear descendant, and any spouse of linear descendant).” IRS Publication 590

IRC 4975 is the section that lays out the rules on prohibited transactions. Prohibited transactions generally involve one of the following: (1) doing business with a disqualified person; (2) benefiting someone other than the IRA; (3) loaning money to a disqualified person; or (4) investing in a prohibited investment.

You need to make sure that it is your IRA that benefits from a transaction rather than you personally. Beware of any “self-dealing” transactions.

Are there any Prohibited Investments?

The Internal Revenue Code outlines the following types of investments as not allowed:

• Artwork
• Rugs
• Antiques
• Metals
• Gems
• Stamps
• Coins
• Beverages
• Stock in a S-Corporation
• Other tangible personal property

How do I know if the Self-Directed IRA LLC is right for me?

Are you tired of having your investments restricted to stocks, bonds and mutual funds? Are you ready to invest in real estate or real estate related investments? Do you want checkbook control? Are you ready for better returns than you’ve been getting? Are you ready to see your retirement increase to the point where you can retire? Are you ready to be in control? If the answer to any of these questions is yes, you are ready for the Self-Directed IRA LLC.

Yes! Leverage is a very powerful tool when purchasing real estate. However, there are unique requirements when using a self-directed IRA and leverage. The “prohibited transaction” rules state that you—as a disqualified person—cannot extend credit to an IRA or IRA asset. This means that if your IRA gets a loan on a piece of real estate, you cannot personally guarantee the loan. This would be viewed as extending credit. Refer to IRC § 4975(c) (1) (B) for more specific information.

An IRA must secure what is called a non-recourse loan. This type of loan is given solely based on the property. A bank who lends money this way is lending money based on the investment rather than lending to a borrower who has a great credit score. Because banks do not have any recourse against the IRA or IRA holder, they typically require a high down payment. In the past we have seen banks require 50% down with marginally high interest rates. Banks are not in the business of foreclosing on homes, so they need to make sure if your self-directed IRA cannot make the payments, the IRA is in a protected position and will not lose its investment. To rectify this possible scenario, iDIRECT has built a working relationship with a national banking institution which will require as little as 30% down with very reasonable interest rates for non-recourse loans in all 50 states.