Menu Close

Strength in Small Bank Lending Helping Self-Directed IRA Real Estate Clients Finance Real Estate Transactions

Self-Directed IRA & Solo 401(k) Plan investors taking advantage of looser lending standard from smaller banks

IRA Financial Group, the leading facilitator of self-directed IRA LLC & Solo 401(k) plan solutions, announces the finding of its internal survey which showed that an increase in small bank lending has helped self-directed IRA real estate and Solo 401(k) plan retirement investors finance and close on attractive real estate transactions throughout the United States. “We have seen a trend in self-directed IRA and Solo 401(k) plan investors attaining non-recourse financing from smaller U.S. banks in order to finance real estate transactions,“ stated Adam Bergman, a tax attorney with the IRA Financial Group. The Federal Reserve defines a large bank as one of the top 25 largest institutions ranked by assets. Small banks, according to the Fed, are all banks below that threshold. “It appears that the small banks have had more success than larger banks with dealing with the new rules which are hampering banks’ efforts to lend by requiring them to hold more capital,“ stated Mr. Bergman. In addition, according to Mr. Bergman, “some big banks are still cautious about making risky loans, having been burned in the financial crisis, which has opened up lending opportunities for small banks and has helped contribute to financing opportunities for IRA real estate investors”.

The IRS has always permitted an IRA to purchase or hold domestic or foreign real estate or raw land. Making a real estate investment is as simple as writing a check with a Self Directed IRA – also known as a Self Directed IRA Real Estate LLC. The Self Directed IRA Real Estate LLC structure, which works the same way as the Self Directed IRA LLC structure, is used for tax-free investing IRA funds in real estate.

With IRA Financial Group’s Self-Directed IRA LLC, a special purpose limited liability company (“LLC”) is created which is owned 100% by the IRA and managed by you or any third-person. The advantage of using an LLC to make the investment is that an LLC is treated as a passthrough entity for tax purposes meaning the owner of the LLC would be subject to the tax not the LLC itself. However, as per Internal revenue Code Section 408, IRAs are exempt from tax. As a result, in most cases, all income and gains generated by the IRA LLC would flow back to the IRA tax-free. In addition, the LLC investment vehicle allows the IRA owner to take more control of his or her retirement funds by keeping the IRA funds at a LLC bank account and not with a far away custodian offering “checkbook control” and greater flexibility to make investments quick and without delay.

However, using a solo 401(k) Plan to make real estate investments involving leverage offers a direct tax advantage over an IRA. With a real estate IRA that is leveraged with mortgage financing, it creates Unrelated Debt Financed Income (“UDFI”) – a type of Unrelated Business Taxable Income (also known as “UBTI or UBIT”) on which taxes must be paid. The UBTI tax is approximately 35%. But, with a Solo 401(k) plan, you can use leverage without being subject to the UDFI rules and UBTI tax. This exemption provides significant tax advantages for using a Solo 401(k) Plan versus an IRA to purchase real estate.

The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP.

IRA Financial Group is the market’s leading “checkbook control Self Directed IRA and Solo 401(k) Plan provider. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent.

To learn more about the IRA Financial Group please call 800-472-0646.

Share the knowledge
Posted in IRA Financial Group, Self-Directed IRA, Solo 401(k)