Can I borrow from my traditional IRA to fund a home purchase, if i use an LLC for the home purchase?
You can borrow from your IRA for any reason whatsoever.
Why are you using and LLC to buy your home? Did you mean an investment property? Is it because you are partnering with others to buy the property?
If your IRA administrator offers a loan program you can borrow against your account. If they do not offer a loan program you can withdraw funds but must pay tax and penalty on the withdrawn money. If you are purchasing a primary residence I believe the IRS allows a penalty free withdrawal within limits. You can also transfer your IRA into a self-directed IRA plan which will allow you more control over the investment options.
I have been trying to learn more about this myself. At last nights meeting, someone brought up Self Directed IRA’s. I have been doing some research on this, and I found this article in Business Week:
http://www.businessweek.com/magazine/content/06_06/b3970114.htm
I have learned that some IRA’s claim to be self directed, but they really aren’t. I have also learned that it looks like there is a big difference in the different banks and firms that offer these trully self-directed accounts, especially when considering the administration fees. If anyone has any experience with this, I would appreciate some feedback as to how I can learn more.
I was able to find this self directed IRA administrator, but I don’t know if it is the best:
Thanks for the great information. Yes, i’m interested in loaning my LLC money, so that I can buy an investment property with it.
your IRA CANNOT invest in any property that is used by you or any family member (up or down).
Your IRA can invest in loans to companies, stocks, etc, but to have the IRA invest in a company that you own and control is questionable. In fact, I doubt that you will find an administrator that will do this without a Private Letter Ruling from IRS (where they look at your facts and circumstances and give you a go no-go. the gold standard of approvals).
having said that, there are a wide variety of real estate investments available that allow you to take advantage of RE returns to boost your retirement savings. My wife and I are currently invested in 6 different limited partnerships through our IRAs. We use Sterling Trust, and I have no problem recommending them, although there are many others.
http://www.sterling-trust.com/
I wouldn’t recommend cashing out IRA’s to invest in RE. You lose 35% off the top in taxes and penalty.
Before you do that, go to a portfolio lender (like Wachovia) and ask for loan qualifications for your LLC. It’s likely that you will need to loan it 30% for the downpayment and provide financial statements (tax returns, bank balance, income, etc.). The minimum documentation is now 2 years worth (in this credit environment), but perhaps a bank will waive that in exchange for a higher interest rate.
I suggest that if you want your LLC to buy RE on its own, without your personal guarantee, you begin building it’s bank rating and credit history. Open a separate business bank account for it and make REGULAR deposits (at least monthly). This will register with an underwriter as “income” and help the LLC qualify for a mortgage.
The Business Week, and other link, says that you can use money invested in a Self-Directed IRA for real estate investments. Their caveat being that you can not use it, or have a family member use it. It must be an investment only. That being said, I have talked to local financial advisors who also said “no way, no how” (Then they tried to get me to invest my money with them). I don’t know which is right. The local financial advisors that I have talked to have no incentive to research on this since it is not offered by their company. They also will not get the cut that they would get if you empowered them manage your money for you.
To answer the OP’s question, you cannot “borrow” money from your personal IRA to purchase real estate. Nor can your IRA lend money to an LLC to buy real estate for you to live in.
Your IRA can buy real estate as an investment. Or you can lend money to another investor (not family) so they can buy real estate. Or you and your IRA can partner up and buy investment property together, but you cannot refinance it later and cash out.
I have my IRA with Equity Trust. Check out their website for detailed articles about what you can and cannot do with self-directed IRAs. It’s pretty complicated stuff. I’ve been trying to figure out a way to use my Mom’s IRA $ to fund my real estate investing while paying her a decent return and I just cannot find a way! 