Frequently Asked Questions (FAQs)

Frequently Asked Questions (FAQs)

Can real estate be held in an IRA?

Contrary to what many brokers will tell you, it is possible to hold real estate directly an IRA. However, it must be a self-directed IRA and the IRA owner cannot benefit directly from the property.

Can I transfer rental property that I own personally to my IRA?

No, this is a prohibited transaction. Your IRA cannot transfer property that you currently own. See IRS Code 4975 for information on prohibited transactions, disqualified persons, and self-dealing.

What is a Self-Directed IRA Administrator?

A self directed IRA administrator is a company that offers record keeping for Individual Retirement Arrangements (IRAs). The Internal Revenue Service (IRS) does not allow an individual to do their own record keeping. It must be done by a third party who keeps track of your Individual Retirement Account and completes all of the required reporting to the IRS in order to keep your money in a tax-deferred status. These administrators work with a custodian. Both are regulated under the custodian’s state division of banking.

Is having an LLC in my IRA permitted?

Yes, it’s legal. The Internal Revenue Code doesn’t list the types of assets that you can invest in; it only states what you cannot invest in. The only two prohibited assets are life insurance and collectibles. Because an LLC is not a prohibited asset, it is a legal investment for your self-directed IRA.

What are the advantages of using an IRA LLC?

Some advantages of using an LLC in your self-directed IRA include:

  • Control – You have a checkbook that is linked to a checking account that is set up in the name of your LLC under its own tax ID number. When you identify an investment that you want to purchase, you can just write a check. You don’t have to fill out paperwork, get approval from the administrator, or wait for someone else to fund the investment–you can take care of it yourself. This can be particularly helpful in investments that have a limited time period or are being auctioned.
  • Cost – Checkbook control can help you avoid transaction and check-writing fees that are typically associated with a self-directed IRA. If there are multiple investments in the LLC, your administrator only charges you for one asset, the LLC.

What investments are prohibited in a self-directed IRA?

It comes as a surprise to many people that there is no list of approved investments for retirement plans. However, the IRS does have a list of what the law does not allow as an investment. Self-directed IRAs cannot invest in:

  • Collectibles: Art, antiques, gems, coins, or alcoholic beverage, and certain precious metals
  • Life insurance (See IRC Section 408(a)(3))
  • S-Corporations: Trusts that qualify as an IRA are not eligible to be shareholders of an S-Corporation. (See Revenue Ruling 92-73)

Can you take distributions early?

Yes, you can take distributions early. But, on top of traditional taxes, if you take a distribution before you are 59 ½ there will be a 10% penalty. There are a few exceptions, like a qualified first-time home purchase, but this is decided on an individual basis.

Are real estate IRA’s subject to IRS (RMD) Required Minimum Distribution?

Yes. Required Minimum Distributions (RMD) apply to Traditional, SEP and SIMPLE IRAs, whether they hold alternative assets (i.e. real estate) or not. Roth IRAs do not require RMDs until the death of the owner.


SELF-DIRECTED RETIREMENT REAL ESTATE INVESTING IS THE KEY TO A SECURE FUTURE

The benefit to passive self-directed investing is not having to watch the stock market. Protect the value of your dollars with the ability to hedge against inflation.


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