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Official Site of the Self Directed IRA Advisors

Self Directed IRA Frequently Asked Questions

Having a self-directed IRA is one step toward obtaining complete control. To obtain a truly self-directed retirement account you need the CHECKBOOK CONTROL IRA LLC. This is the structure that gives you checkbook control. When you simply establish an account with a self-directed custodian, you are still required to get permission from the custodian before making each investment. This is time consuming, cumbersome and more expensive than it needs to be. With the CHECKBOOK CONTROL IRA LLC you are then able to make investments the minute you decide to without getting permission from anyone. You have the checkbook. You are in control of your retirement money. We firmly believe that you are the best steward for your money. Nobody cares as much about your retirement as you do.

How do I know that this is legal?

This is a question that is frequently asked by investors who have never heard that they could invest in anything other than stocks and bonds. They have no idea that they can invest in Real Estate and many other investments. However, Real Estate has been an allowed investment since the day IRAs were created almost thirty years ago.

Find out for yourself by going to the Internal Revenue Service’s website www.IRS.gov. Request Publication 590. On pages 40-41 you will see what investments are not allowed (see below – collectibles, life insurance, s-corporation stock, etc.). Real Estate is NOT mentioned as a disallowed investment just like stocks, bonds, mutual funds are not mentioned as a disallowed investment.

Can I transfer funds from a 401K, IRA, Sep IRA, Roth IRA, or 403b and direct investments myself?

Yes. You can self direct all of these types of accounts. They can all be invested into the CHECKBOOK CONTROL IRA LLC for truly self-directed investing.

Can I invest my IRA in Real Estate?

Absolutely. Although less than 3% of retirement accounts are invested in non-traditional investments (anything other than Dow & Nasdaq stocks, bonds, CDs, etc), and less than 2% are invested in Real Estate, that is changing. More and more individuals are becoming more and more frustrated with the options offered by their current custodians. Individuals are exploring investments that they can see and touch and that have some tangible value such as Real Estate. They have seen the outstanding returns that investors have historically received in Real Estate and want to move all or part of their retirement money into various Real Estate investments.

Within the broad category or Real Estate there are many options for investment:

Residential Rentals, Commercial Properties, Condominiums, Mobile Homes, Raw Land, Real Estate in Foreign Countries, Trust Deeds / Mortgages, and Mortgage Pools

What does the IRS think of investing your IRA in Real Estate?

The IRS makes the following statement on their website “…..because of administrative burdens, many IRA trustees do not allow IRA owners to invest IRA funds in real estate. IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option.”

Can my IRA purchase Real Estate I already own?

No. This would be considered a prohibited transaction (see IRC 4975). You many not purchase property which is currently owned by you or any other disqualified person (see below). You would need to find another piece of Real Estate that you don’t already own to purchase.

Why does my current broker say I can’t buy Real Estate in my IRA?

Likely because your current broker won’t let you invest in real estate through their custodian. Just because that isn’t something they offer doesn’t mean that you can’t do it; It just means that you can’t do it through them. It is a limitation that your broker is placing on your IRA NOT one that the IRS is placing on your IRA. Or your current broker may just be ignorant. Either way, you can invest in Real Estate.

What is the easiest way to buy Real Estate using my IRA?

The CHECKBOOK CONTROL IRA LLC is the way to get checkbook control over your IRA. A self-directed IRA account isn’t enough. You will still need to get permission and have someone else sign off on all investments you want to make. If you are ready to be in control of your IRA, you need the CHECKBOOK CONTROL IRA LLC.

If I buy an income producing rental property, what happens to the rent income?

The income goes back into the CHECKBOOK CONTROL IRA LLC, and you retain the tax deferred or tax free status of the investment.

I don’t have enough money in my IRA to purchase a piece of property outright. Can my CHECKBOOK CONTROL IRA LLC get a loan and use my IRA money as the down payment?

Yes you can use your IRA money as the down payment and then have your CHECKBOOK CONTROL IRA LLC get a loan for the balance. However, you will not be able to personally guarantee the loan. It must be a non-recourse type of loan which means that if your IRA fails to make payments, the only recourse the lender has is against the property itself. Further, there will be tax ramifications to doing so; UDFI (unrelated debt financed income) tax applies when a loan is obtained so you would want to confer with your tax professional about what forms would be necessary.

My IRA is small. Can I personally co-invest with my IRA?

It is not a prohibited transaction for you to co-invest with your IRA. However, there are certain formalities that need to be adhered to, and there are some situations where it isn’t advised.

Can my IRA co-invest with friends?

Yes. IRAs may purchase an undivided (and proportionate) interest in Real Estate. See Kiplingers March 2005....

Can I be the property manager of the Real Estate?

That depends. With just a self-directed IRA the answer is no. But with the CHECKBOOK CONTROL IRA LLC you have the ability to manage the property, collect the rent and pay the bills. Unlike just having a self-directed IRA which put restrictions on what you can do, the CHECKBOOK CONTROL IRA LLC structure allows you to perform maintenance on the property, advertise for renters, collect and deposit the rent checks, pay the real estate bills, etc. This saves your IRA a lot of money and helps provide a more comfortable and prosperous retirement for you.

May I use my IRA funds to make improvements or renovations?

Yes. In fact, you must use IRA funds to make the improvements and pay all expenses associated with the property. All expenses of the property are paid with IRA funds, and all profits made on the property are returned to the IRA. This makes sense because it is an investment of the IRA

Can I buy vacation property?

Yes. Doing so would not constitute a prohibited transaction. However, you cannot vacation there.

Can I buy my dream retirement home with my IRA and then live in it when I reach the age of retirement?

Yes. Your IRA would be the original owner. You would use your IRA money to make the purchase and maintain the property. Any rents generated would be returned to the IRA. However, upon reaching retirement age, the property could be distributed out to you. Of course, you would have to pay taxes at that point but without penalty.

What are the advantages to using an CHECKBOOK CONTROL IRA LLC when investing my IRA in Real Estate?

You can only receive checkbook control with the CHECKBOOK CONTROL IRA LLC. With a self-directed custodian, you get more control than you get with a traditional custodian, but you still have to get permission from the custodian for every little thing you do. This is problematic, unnecessary and annoying. Further, with any time sensitive investment it puts you at a huge disadvantage. And what Real Estate deals aren’t time sensitive. If you don’t move quickly, you will miss out on the best deals. And think of tax liens and tax deeds sold on the courthouse steps; you need to have checkbook control or you miss out. With the CHECKBOOK CONTROL IRA LLC you have the checkbook, authority to write the checks and can make an investment without time delays. This ensures that your IRA is able to make the best investments at the best prices.

With the CHECKBOOK CONTROL IRA LLC your IRA will be subject to fewer and lower fees from the custodian. Thus, there is more money for your retirement, which is the whole goal of an IRA.

You obtain the ability to manage the property, collect the rent and pay the bills. Unlike just having a self-directed IRA which put restrictions on what you can do, the CHECKBOOK CONTROL IRA LLC structure allows you to perform maintenance on the property, advertise for renters, collect and deposit the rent checks, pay the real estate bills, etc. This save your IRA a lot of money and helps provide a more comfortable and prosperous retirement for you.

Can my CHECKBOOK CONTROL IRA LLC get a mortgage on a piece of property?

Yes. The mortgage would need to be a non-recourse type of loan, meaning that if your IRA fails to make the payments, the only recourse the lending institution has is the property itself. Also, be aware that if your IRA obtains a loan, unrelated debt financing income tax will apply.

Can my CHECKBOOK CONTROL IRA LLC make loans to other individuals who want to buy Real Estate?

Absolutely. And this is done frequently, and it is a great investment for your IRA because the loan can be secured by the property.

Can I make a loan to my brother so that he can use the money as a down payment on a home?

Yes. According to IRC 4975, siblings are not included in the definition of disqualified persons. Thus, a loan to your brother would not be a prohibited transaction. Although some suggest that it was an error on the part of the IRS to omit siblings from the definition, they, nonetheless, were omitted and to the best of our knowledge, there has never been an IRS ruling to the contrary.

Can my CHECKBOOK CONTROL IRA LLC make loans to a friend?

Absolutely. Friends are not disqualified persons under the Code, and therefore, your IRA can make a loan to them for any purpose whatsoever (boat, airplane, hot tub, home improvements, etc.). Of course, you want to make sure that there are proper formalities and reasonable terms to the loan.

Can my CHECKBOOK CONTROL IRA LLC make loans to a Real Estate developer?

Yes. Your IRA can loan money to a Real Estate developer to finance the purchase of property or the development of property. Developers often look for private financing so it is a great way to get your IRA involved in Real Estate development. And because developers often pay an above market interest rate, the loan can be a great investment for your IRA.

Can my CHECKBOOK CONTROL IRA LLC make loans to businesses or companies?

Sure. Your IRA can make a loan to any type of business. However, be aware that there are some restrictions on loan money to any business that you or any other disqualified person has an ownership interest in.

Do taxes and penalties apply when I take money out to buy Real Estate?

No. You DO NOT take money out to purchase Real Estate or anything else you want to buy. It is just a purchase of your IRA or your CHECKBOOK CONTROL IRA LLC. There are no taxes or penalties. Instead of buying 1000 shares of Microsoft or any other typical stock, your IRA is just making a different type of investment. The method of doing so is different but the tax ramifications are the same.

Are the gains that my CHECKBOOK CONTROL IRA LLC makes taxable?

Not in most cases. If an IRA buys a piece of property and then sells it at a profit, the gains stay within the IRA. If you have a traditional IRA, the gains are tax-deferred. If you have a Roth IRA, the gains are tax free. Note, you alter that result if you use leverage.

Are there any special taxes that apply when I use leverage?

Unrelated debt financing income tax would apply.

Does it still make sense to use leverage?

Absolutely. Because of your increased buying power when you use leverage, the profits you make from the ability to use leverage can greatly outweigh the tax associated.

Can I invest outside of my state or outside the country?

Yes! Your IRA can invest outside of the U.S. States. There are many great investment opportunities in other countries.

What are Prohibited Transactions?

Understanding what constitutes a prohibited transaction is very important when it comes to making investments within your IRA. 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.

In plain English, prohibited transactions are those transactions that violate the basic intent of the IRA. Your IRA must benefit rather than benefiting you personally. In other words, there can be no “self dealing” transactions. However, there are many ways in which you can invest your IRA and not be in violation of the prohibited transaction law. And when your IRA benefits, you benefit because it is for your retirement.

What are Prohibited Investments?

The Internal Revenue Code does not specifically authorize investments within an IRA; rather, the code outlines what types of investments are not allowed. The Prohibited Investments include:

Artwork, Rugs, Antiques, Metals, Gems, Stamps, Coins, Beverages, Stock in a S-Corporation, And certain other tangible personal property

Who is a disqualified person?

The IRA holder and his or her spouse;

The IRA holders ancestors, lineal descendants and their spouses; investment advisors and managers, any corporation, partnership, trust or estate in which the IRA holder has a 50% or greater interest; and anyone providing services to the IRA such as a trustee or custodian.

How am I a disqualified person? It doesn’t seem to make sense.

There is a clear distinction between your IRA and you individually. You and your IRA are not the same. Your IRA is a separate Trust for your benefit when you retire.

What would be classified as Self Dealing?

Self dealing is using your IRA in transactions that in some way benefit you (or other disqualified persons) individually. The purpose of your IRA is to provide for your retirement. It is not intended to benefit you prior to retirement and distribution of the funds.

What are some types and examples of Prohibited Transactions and / or Self-Dealing Transactions?

You can't purchase a home from your daughter or purchase a property from yourself that you already own. You can only invest in new properties and purchase properties from an individual who is not considered a disqualified person.

You purchase a vacation home, hunting property or a golf course as an investment for your IRA but you yourself cannot personally use it. All the purchases made by the IRA LLC MUST be for investment purposes only.

You cannot perform maintenance on a property that your IRA owns and pay yourself for work that you do on the property such as repairing a leaking faucet.

Can I buy a business with my CHECKBOOK CONTROL IRA LLC?

Yes, you can buy a business with your IRA money via the CHECKBOOK CONTROL IRA LLC. Please contact us for details... 866-683-5228

Can I invest in an existing business?

Yes. This can be done as the purchase of stock as a loan to the business.

What about S-Corporations?

S-Corporations do not allow IRAs as investors; they only allow individuals as investors. Therefore, it isn’t so much that IRAs are prohibited from investing in S-Corporations rather that S-Corporations don’t permit having an IRA as a shareholder. It is likely that the investment of the IRA would revoke the sub-s status of the corporation.

Can I buy Stocks, CDs, Bonds, Options, in my CHECKBOOK IRA LLC.?

Yes. There is no since in letting your retirement funds sit on the sideline while you are looking for real estate investments. You can invest in publicly traded stocks, CDs, mutual funds, annuities, bonds, stock options, futures, etc. For example if you are an active day trader, with checkbook control you will be able to trade your IRA in a manner that your current broker does not allow you to trade using the CHECKBOOK CONTROL IRA LLC. For example, you probably have asked your broker if you can buy or sell Options (Calls and Puts). Or maybe you would like to write Covered Calls or do Spreads and have been told no. The CHECKBOOK CONTROL IRA LLC allows you to trade your way.

I have a 401K with an old employer. Can I move it into the CHECKBOOK CONTROL IRA LLC?

Yes. You can move these 401K funds into the CHECKBOOK CONTROL IRA LLC. We do it all the time. We can faciliate the rollover so that you can unlock those funds for your next real estate purchase.

Is the transfer a taxable event?

No... A direct rollover is not a taxable event.

I have a 401K with my current employer. Can I move it into the CHECKBOOK CONTROL IRA LLC?

Depends on the 401K plan document for your current employer. Iwill specify what you can do but most of the time you cannot move money from a 401K plan if you are currently working for the company however in some cases you might be able to unlock a portion of your 401K funds and self direct those funds for real estate investing purposes. It is worth looking into for sure.

I have several IRAs and old 401Ks. Can I combine them?

Yes. The can all be combined and then invested into your CHECKBOOK CONTROL IRA LLC so that your buying power is maximized. The only restriction is on 401(k)s; at is is that you generally must no longer work for the employer. You can usually combine multiple retirement accounts into one account. Or in the event that they can’t be combined, such as the case of a traditional IRA and a Roth IRA, they can still be invested into the same CHECKBOOK CONTROL IRA LLC so that you still have maximum buying power.

How do I get started?

Give us a call today at 866-683-5228 or send us an email at info@myrealestateira.com.

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If so, can I authorize access to another person (my accountant, say?) Yes

Do you offer checkbook control to investors? Yes

If not, what is your position on that? Not applicable

Do you allow investments in LLCs and LPs? Yes

Can I invest in an LLC I manage? Yes

Can I partner with my IRA, and if so, what are your rules? Yes. We will need to create a separate LLC for the partnership.

Can my IRA partner with another unrelated individual on investment properties? Yes all day!

Can my IRA pay for pre-construction reservations I intend to assign or simultaneously close on? Yes.

Can my IRA invest in secured and unsecured notes? Yes

Do you have the flexibility to consider unique transactions? Yes

Can I manage rental properties owned by my IRA, and if so, is there a limit to how many? Yes no, there is no limit.

Must I hire a bookkeeper for rental properties owned by my IRA? No

Are you bonded for theft and fraud? The asset is held by the LLC not by us.

Are uninvested funds insured? Typically yes since the client has checkbook control the funds are in an FDIC account.

Do you have any litigation ongoing or pending? No

Do you have an audited annual report available? No

Do you permit debt-financed properties? Yes

Do you permit foreign real estate? Yes

What is your review process of limited partnerships? We draft the LPs with tax attorneys. Typically the custodians have no say in the content. And they cannot make judgment upon any instrument such as this.

What are your most common problems in real estate transactions? People use funds incorrectly and/or title the property incorrectly.

Do you offer any advice on investment vehicles or individual investments? Yes. Custodians cannot offer advice!!!

Are you independent of products recommended? Yes.

Do you have a complaint procedure? Yes.

Do you have any testimonials? Yes.

What sets your company apart from the rest (you can elaborate here if you wish)? We offer support beyond the custodian. You’ll find the answers from the custodians you have contacted will be considerably different than those I provided for you. The custodian is a product to us we’ll find the best deal for your needs. We can also structure the deal so you and the IRA holders are shielded from the IRS. We offer the four following benefits: