Self Directed Roth IRA LLCUsing a Self-Directed Roth IRA LLC To Purchase Real Estate




Using a Self Directed Roth IRA LLC To Purchase Real Estate

Appearing live on CNBC's Squawk Box, Warren Buffett tells Becky Quick he'd buy up "millions" of single family homes if it were practical to do so.

-As reported on CNBC 2/27/12



It's Time To Let 401(k) Holders Invest Like the Pros Most people mistakenly believe that their Roth IRA must be invested in bank CDs, the stock market, or mutual funds. Few Investors realize that the IRS has always permitted real estate to be held inside IRA retirement accounts. Investments in real estate with a Self-Directed Roth IRA LLC are fully permissible under the Employee Retirement Income Security Act of 1974 (ERISA). IRS rules permit you to engage in almost any type of real estate investment, aside generally from any investment involving a disqualified person.

In addition, the IRS states the following on their website: “…..IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option.”

Advantages of Using a Self-Directed Roth IRA LLC to Purchase Real Estate

Income or gains generated by a Roth IRA generate tax-free profits. Using a Self-Directed Roth IRA LLC to purchase real estate allows Using a Self Directed Roth IRA LLC To Purchase Real Estatethe Roth IRA to earn tax-free income/gains and never pay taxes on any future date, rather than in the year the investment produces income.

With a Self-Directed IRA Roth LLC, you can invest tax-free and not have to pay taxes ever! All the income or gains from your real estate deals flow though to your Roth IRA tax-free!

Types of Real Estate Investments

Below is a partial list of domestic and foreign real estate-related investments that you can make with a Self-Directed Roth IRA LLC:

Investing in Real Estate with a Self-Directed Roth IRA LLC is Quick & Easy!

Purchasing real estate with a Self-Directed Roth IRA LLC is essentially the same as purchasing real estate personally.

Tax Advantages of Using a Self-Directed Roth IRA LLC!

Using a Self-Directed Roth IRA LLC to make real estate investments presents a number of exciting tax planning opportunities.

The primary advantage of using a Self-Directed Roth IRA LLC to make real estate investments is that all income and gains associated with the Roth IRA real estate investment grow tax-free and will not be subject to tax upon withdrawal or distribution. This is because unlike traditional IRAs, you are generally not subject to any tax upon taking Roth IRA distributions once you reach the age of 59 1/2.



Structuring the Purchase of Real Estate with a Self-Directed Roth IRA LLC

When using a Self-Directed Roth IRA LLC to make a real estate investment there are a number of ways you can structure the transaction:

1. Use your Self-Directed Roth IRA LLC funds to make 100% of the investment

If you have enough funds in your Self-Directed Roth IRA LLC to cover the entire real estate purchase, including closing costs, taxes, fees, insurance, you may make the purchase outright using your Self-Directed Roth IRA LLC. All ongoing expenses relating to the real estate investment must be paid out of your Self-Directed Roth IRA LLC bank account. In addition, all income or gains relating to your real estate investment must be returned to your Self-Directed Roth IRA LLC bank account.

2. Partner with Family, Friends, Colleagues

If you don’t have sufficient funds in your Self-Directed Roth IRA LLC to make a real estate purchase outright, your Self-Directed Roth IRA LLC can purchase an interest in the property along with a family member (non-disqualified person - any family member other than a parent, child, spouse, daughter-in-law, son-in–law), friend, or colleague. The investment would not be made into an entity owned by the IRA owner, but instead would be invested directly into the property.

For example, your Self-Directed Roth IRA LLC could partner with a family member (non disqualified person - any family member other than a parent, child, spouse, daughter-in-law, son-in–law), friend, or colleague to purchase a piece of property for $150,000. Your Self-Directed Roth IRA LLC could purchase an interest in the property (i.e. 50% for $75,000) and your family member, friend, or colleague could purchase the remaining interest (i.e. 50% for $75,000).

All income or gain from the property would be allocated to the parties in relation to their percentage of ownership in the property. Likewise, all property expenses must be paid in relation to the parties’ percentage of ownership in the property. Based on the above example, for a $2,000 property tax bill, the Self-Directed Roth IRA LLC would be responsible for 50% of the bill ($1000) and the family member, friend, or colleague would be responsible for the remaining $1000 (50%).

Isn’t Partnering with a family member in a Real Estate Transaction a Prohibited Transaction?

Likely no if it the transaction is structured correctly. Investing in an investment entity with a family member and investing in an investment property directly are two different transaction structures that impact whether the transaction will be prohibited under Code Section 4975. The different tax treatment is based on who currently owns the investment. Using a Self-Directed Roth IRA LLC to invest in an entity that is owned by a family member who is a disqualified person will likely be treated as a prohibited transaction. However, partnering with a family member that is a disqualified person directly into an investment property would likely not be a prohibited transaction. Note: If you, a family member, or other disqualified person already owns a property, then investing in that property with your Self-Directed Roth IRA LLC would be prohibited.

3. Borrow Money for your Self-Directed Roth IRA LLC

You may obtain financing through a loan or mortgage to finance a real estate purchase using a Self-Directed Roth IRA LLC. However, two important points must be considered when selecting this option: Real Estate IRA LLC

For example, if the average acquisition indebtedness is $50 and the average adjusted basis is $100, 50 percent of each item of gross income from the property is included in UBTI.

A Self-Directed Roth IRA LLC subject to UBTI is taxed at the trust tax rate because an IRA is considered a trust. For 2016, a Self-Directed Roth IRA LLC subject to UBTI is taxed at the following rates:

The IRA Financial Group will take care of the entire setup of your Self-Directed Roth IRA LLC “Checkbook Control” structure. The whole process can be handled by phone, email, fax, or mail and typically takes between 7-21 days to complete, the timing largely depending on the state of formation and the custodian holding your retirement funds. Our IRA experts and tax and ERISA professionals are onsite greatly reducing the setup time and cost. Most importantly, each client of the IRA Financial Group is assigned a retirement tax professional to help with the establishment of the Self-Directed Roth IRA LLC "Checkbook Control" structure. You will find that our fee for this service is significantly less than other companies that perform the same or similar services.

To learn more about using a Self-Directed Roth IRA LLC to invest in real estate, please contact one of our Self-Directed Roth IRA Experts at 800-472-0646 for more information.

Did you know? All net profits and losses of a Self-Directed Roth IRA LLC are allocated to the IRA members pro-rata.


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