I read somewhere that your own personal IRA can purchase the home. Is this correct? If so, how does this work?
thanks for the help!
Hi,
Im also newbie on this but Im working on it and I got info from this company:
This company let you invest your IRA in non traditional assets such as Real Estate, Tax Liens; Mortgages; Deeds of Trust etc, etc
Good luck!!
first off you need to have a substantial amt of money in the IRA as it has to cover all the expenses ( mortgage payment, insurance, taxes, etc). You can not just do a downpayment and then cover the rest out of pocket; that would be co-mingling of funds.
also you need a non-recouse loan (i.e. non-standard).
It’s called a “self-directed” IRA and it is a powerful retirement and investment tool. It completely defers (or avoids in the case of a Roth) taxes on the income and gain of the investment. The down side is that you can’t immediately have your cake - it’s in the retirement account.
Sterling Trust Co is a reputable custodian of self-directed accounts and their website has much good information.
Your self directed IRA cannot own your personal residence, though, or engage in transactions with any family members. Plus, as aak stated, the entire transactions must be handled by the IRA custodian. You must have a management company (not you) for rental property, they write all the checks, etc.
Note, though, that a self directed IRA can own stock in an S-corp or LLC, which does give you access to “partial” ownership of real estate owned by the company. That’s one way around the comingling issue, but it could be tricky. The property is owned by the S-corp, which is 50% owned by the IRA and 50% owned by you.
Note that I’ve never actually done the “IRA owns a share of a corp” thing, only read about it.
SMDEG,
do you mean “a” home or “your” home?
#1 - I believe the the website is www.trustetc.com
#2 - you can use your your IRA to purchase a home. like mcwagner states, it cannot be your personal residence.
#3 - you do not need a substantial amount of $$$ in your IRA. I use a partners IRA for small down payments and pay them a specific % return on that money. It is just a small loan, secured by a 2nd mortgage on real estate.
#4 - your IRA can engage intransactions with family members. There are stipulations though. first, you should review IRC section 4975 about “disqualified persons” and prohibited transactions. it states in a nutshell: 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 of your family (spouse, ancestor, lineal descendant, and any spouse of lineal descendant).”
the question that arises is … are your brothers and sisters considered “lineal” decendents? No.
you may also want to check out IRS publication 590. go to http://www.irs.gov/publications/p590/index.html
#5 - ther is a new hybrid entity that allows you to have checkbook access to your IRA funds, but there are restrictions. consult a knoweledgeable CPA or financial planner for the details. it is called the IRA LLC or Roth IRA LLC. it combines the best of the tax free IRA with the entity structure of the LLC.
do your homework!
don’t know why the formatting was all messed up.
I think I got it cleaned up to what you need.
Keith
Moderator
Thanks to everyone for their help with this question.
You can co-mingle if you do a c-corp. Then you can use IRA and non-IRA assets to buy shares of your company stock. Then when you pay dividends you just split them appropriately. You could also have different classes of stock. Whatever fits your needs.
Can anyone recommend a lawyer and cpa in the NY City area familiar with self directed IRA investing.
I have used Security Trust Company for this.
http://www.securitytrustcompany.com
I think they are based in Maryland, but I have local reps in Chicago that I use where I am.
You should check out Entrust. They one of the largest self directed administrators in the country. And all the money when not in use, is kept in a FDIC insured bank. You need to find out where your money is kept before you make any changes.
Thanks for the information! I will check them out.
Here is an article on purchasing your own home with a self directed IRA. It is from the Entrust website, but it is a good article…
http://www.entrustcama.com/iraplus/ira-insights/issues/2006-05/72_t_Distribution.sqrl
Etzion