In this week’s episode, IRA Financial’s Adam Bergman Esq. answers questions about holding IRS-approved coins at home, getting a Solo 401(k) nonrecourse loan and if a storage facility investment would trigger UBTI.
Question 1 from William in M, Enid, OK: I hear that IRS-allowed coins can be held at home but not gold – is that right?
We’ve talked about this before, however, this is incorrect. You cannot hold coins at your house. Section 4018(m) of the IRS Code describes what types of precious metals and coins can be held with a retirement account. Further, it states that all coins and metals must be held in the physical possession of a US trustee – such as a banks and depositories.
People may argue the line about possession comes after bullion in the code, but not after coins. Plus, you may see ads, commercials, etc. talking about holding gold and coins at your home. Although it may have be written more clearly, it seems all metals and coins should not be held by you personally. It’s always best to err on the side of caution. You don’t want the IRS coming after you if you decide to hold IRA- or 401(k)-invested coins at your home.It’s also suggested not to hold them in a safe deposit box to be sure.
Question 2 from Jen W in Montclair, NJ: How hard is it to get a nonrecourse loan for my Solo 401(k) plan?
As you may know, you cannot get a recourse loan for your Solo 401(k) investment. Generally, a Solo 401(k) loan will be used for a real estate purchase. Since you can’t personally guarantee the loan, it must be nonrecourse. This means, only the investment made with those funds can be seized in the event of non-repayment of the loan. The property is the collateral for the loan. Because of this, it’s much harder to get this type of financing.
There are plenty of providers for nonrecourse financing. It’s best to start with your bank to see if you qualify for a loan there. Your next choice, if your bank is unwilling to give you a loan, there are nonrecourse loan providers out there. Plenty of clients of IRA Financial have used these lenders to get loans. Generally, you need to put 30-40% down. Because of the risk, your interest rates will be higher than a traditional loan or mortgage. The good thing about a Solo 401(k) is there are no UBTI taxes. IRAs are subject to the tax on the debt portion of the loan.
Question 3 from Sean M in Youngstown, OH: If I invest in a storage facility – would that trigger UBTI?
When you invest in an active trade or business, such as a retail shop, you might be subject to the UBTI rules. If the business is operated under a disregarded entity, such as an LLC, there is no escaping the tax. A storage facility is not considered passive rental income. If you were renting out a house owned by your retirement plan, that rent is passive and not subject to UBTI. Unfortunately, it states in the Internal Revenue Code that a storage facility is not deemed real estate rental income.
Just like a hotel, it’s not pure rental income so it is subject to the UBTI tax. Essentially, there are other services that come with utilizing a storage space, like security, maintenance and the like. Similar to a hotel that has these types of other services, unlike a rental home, where only the basics, like water and heat, are provided.
AdMail – Keep it Coming
We hope you enjoyed the latest episode of AdMail. Mr. Bergman will continue to respond to questions each week so long there is a demand for them! If you have any questions for him, email him at [email protected].
As with his other podcasts, you can check out AdMail on SoundCloud. Be sure to subscribe to know when the next one pops up! Thanks for listening and have a great day, Self-Directed Nation!