Frequently Asked Questions

This section will help you get a more detailed understanding of how Self-Directed IRA LLCs work, what kinds of transactions are permitted and prohibited, and how you can effectively use the power of the retirement account to its full potential.

If you have any additional questions that aren't answered here, be sure to schedule a free consultation with one of our world class IRA Concierges now.

Questions List:

Q: This sounds amazing, why haven't I heard of it before?
A: This is by far the most common question we get at Easy IRA Solutions. This isn't something that most people know about because it's not widely advertised. Imagine you had control of trillions of dollars and each time money was made, you got a % commission, but each time money was lost, you didn't lose any money.

Then someone came to you wanting give you more money and didn't even ask if there was another option, would you try to get them to take their money from you and put it elsewhere?

Has anyone been lying to you? Most likely not. You just didn't know to ask.

Q: What is a Self-Managed IRA LLC and how is it any different from a regular IRA or a "Self-Directed IRA" through my current custodian?
A: A Self-Managed IRA LLC is no different than any other IRA, except that you personally make all of the investment decisions for your retirement account. Many custodians claim they allow you to self-direct your IRA investments in a so-called "Self-Directed IRA", but actually often heavily restrict what you can invest in and require extensive reviews. A truly Self-Managed IRA, like the one offered by Easy IRA Solutions, puts you in the driver's seat and allows you to make the decisions with your money without restriction, except transactions that are prohibited by law.

Q: What are the advantages to using a Self-Managed IRA LLC when investing in real estate?
A: You only receive "checkbook control" of your retirement funds with the Self-Managed IRA LLC. While you do get more control with a self-directed custodian, you still have to get permission from the custodian for every transaction. This is problematic, as it often causes delays on transactions that require timely fiscal actions.

For instance, tax liens and tax deeds are sold in courthouse auctions, but require you pay immediately after the auction has completed. With the Self-Managed IRA LLC, you have a checkbook and the authority to write checks on the spot, getting you access to more lucrative investment opportunities.

Additionally with the Self-Managed IRA LLC, your IRA will be subject to fewer and lower fees from the custodian than is typical with Self-Directed IRAs that do not hold an LLC. For more information on benefits of the Self-Managed IRA LLC, please visit our homepage now.

Q: What are the Self-Managed IRA Custodial Fees?
A: $115 a year flat rate… Whether you have 100 thousand dollars or one million dollars in your IRA.

Q: What types of retirement accounts can be moved into Self-Directed accounts?
• Traditional IRAs

• Roth IRAs

• 403(b)s

• Qualified Annuities

• Money Purchase Plans

• Keoghs

• 401(k)s

• Coverdell Education Savings

• Profit Sharing Plans

• Government Eligible Deferred
Compensation Plans

Q: What can I invest in if I have a Self-Managed IRA LLC?
A: Your Self-Managed IRA LLC can make any investment a regular LLC can as long as you stay away from insurance contracts and collectibles. Also you may not have any "self dealings" without a DOL exemption, which can be explained in further detail by our IRA Concierges.

Q: Can I invest my IRA in Real Estate?
A: Yes, currently less than 3% of retirement accounts are invested in non-traditional investments (anything other than Dow & Nasdaq stocks, bonds, CDs, etc.), and less than 2% are invested in Real Estate, but that is rapidly changing. More and more individuals are becoming frustrated with the options offered by their current custodians, and are looking for alternatives that have a physical backing. Real Estate Investment options include: Residential rentals, commercial properties, condominiums, manufactured homes, raw land, real estate in foreign countries, trust deeds / mortgages, and mortgage pools.

Q: Is the IRS okay with me investing my IRA in Real Estate?
A: Absolutely. The IRS makes the following statement on their website "…because of administrative burdens, many IRA trustees do not allow IRA owners to invest IRA funds in Real Estate. IRA law does not prohibit investing in Real Estate but trustees are not required to offer Real Estate as an option."

Q: If I buy an income producing rental property, what happens to the rental income?
A: The income goes back into the Self-Managed IRA LLC and you retain the tax deferred or tax free status of the investment (depending on the type of IRA account)

Q: I don't have enough money in my IRA to purchase a piece of property outright. Can my Self Directed IRA LLC get a loan and use my IRA money as the down payment?
A: Yes, you may use capital in your IRA as a down payment and then have your Self-Managed IRA LLC get a loan for the balance. However, you will not be able to personally guarantee the loan. It must be a non-recourse loan, which means that if your IRA fails to make payments, the only recourse the lender has is against the property itself.

However, there will be tax ramifications to doing so; UDFI (unrelated debt financed income) tax applies when a loan is obtained, so you need to confer with your tax professional about what forms would be necessary to file.

Q: Can I be the Property Manager of the Real Estate?
A: That depends. With just a self-directed IRA, the answer is no. With the Self-Managed IRA LLC, you have the ability to manage the property, collect the rent and pay the bills.

Q: Do taxes and penalties apply when I take money out to buy real estate?
A: No, you do not take money out to purchase real estate or anything other asset. It is a purchase of your Self-Managed IRA LLC, so there are no taxes or penalties. Think of it as buying shares of a company like Microsoft, your IRA is just investing in "shares" of a different asset class.

Q: Can I invest outside of my state or outside the country?
A: Yes! Your IRA can invest outside of the U.S. if you so choose.

Q: May I use my IRA funds to make improvements or renovations?
A: Yes. In fact, if the property is purchased with capital from your IRA, you must use IRA funds to make the improvements and pay all expenses associated with the property. All expenses of the property are paid with IRA funds, and in turn, all profits made on the property are returned to the IRA.

Q: Can I buy my dream retirement home with my IRA and then live in it when I reach the age of retirement?
A: Yes. Your IRA would be the original owner, so you would use your IRA money to make the purchase and maintain the property. Any rents generated would be returned to the IRA. However, upon reaching retirement age, the property could be distributed out to you. It is important to note that you would have to pay taxes on the distribution.

Q: Can my Self-Managed IRA LLC make loans to other individuals who want to buy real estate?
A: Yes. This is done frequently and it is a great investment for your IRA because the loan can be secured by the property.

Q: Can I make a loan to my brother so that he can use the money as a down payment on a home?
A: Yes. According to IRC 4975, siblings are not included in the definition of disqualified persons. Thus, a loan to your brother would not be a prohibited transaction. Although some suggest that it was an error on the part of the IRS to omit siblings from the definition, they, nonetheless, were omitted and to the best of our knowledge, there has never been an IRS ruling to the contrary.

Q: Can my Self-Managed IRA LLC make loans to a friend?
A: Yes. Friends are not disqualified persons under the IRS Code, and therefore, your IRA can make a loan to them for any purpose whatsoever (boat, airplane, hot tub, home improvements, etc.). You want to make sure that there are proper formalities and reasonable terms to the loan.

Q: Can my Self-Managed IRA LLC make loans to a real estate developer?
A: Yes. Your IRA can loan money to a real estate developer to finance the purchase of property or the development of property. Developers often look for private financing, so this is another great way to get your IRA involved in real estate development.

Q: Can my Self-Managed IRA LLC make loans to businesses or companies?
A: Yes. Your IRA can make a loan to any type of business. However, be aware that there are some restrictions on loan money to any business that you or any other disqualified person has an ownership interest in.

Q: Can I buy a business with my Slef-Managed IRA LLC?
A: Yes, you can buy a business with your IRA money via the Self-Managed IRA LLC.

Q: Can I invest in an existing business?
A: Yes. This can be done as the purchase of stock constitutes a loan to the business.

Q: Is this completely legal?
A: This is a question that is frequently asked by investors who have never heard that they could invest their IRA funds in anything other than stocks and bonds. They have no idea that they can invest in Real Estate and other asset classes. However, alternative investments like Real Estate have been allowed since the inception of IRAs nearly thirty years ago.

Q: My IRA is small. Can I personally co-invest with my IRA?
A: It is NOT a prohibited transaction for you to co-invest with your IRA, but there are certain formalities that need to be adhered to.

Q: Can my IRA co-invest in real estate with friends?
A: Yes. IRAs may purchase an undivided (and proportionate) interest in real estate.

Q: Are the gains that my Self-Managed IRA LLC makes taxable?
A: Not in most cases. If an IRA buys a piece of property and then sells it at a profit, the gains stay within the IRA. If you have a traditional IRA, the gains are tax-deferred. If you have a Roth IRA, the gains are tax-free.

Q: Are there any special taxes that apply when I use debt financing to purchase real estate?
A: Unrelated business taxable income (UBIT) would apply. Due to non-profit organizations encroachment on the business opportunities normally engaged in by taxable businesses, the IRS code was altered to include the provision in 1950.

Essentially, if a tax-exempt entity (e.g., non-profit) engages in a business that is unrelated to its primary purpose, any income derived from such business will be subject to UBIT. IRAs are also subject to UBIT if they conduct unrelated businesses that produce profits.

For example, if an IRA forms an LLC to buy and operate a dry cleaner or gas station, businesses obviously unrelated to the primary purpose of an IRA, the net income will be taxed as UBIT (at the trust tax-rate because an IRA is considered a trust under the tax code in this purpose). The change in the code was intended to level the playing field between tax-exempt organizations and for-profit organizations conducting the same businesses.

Q: What are IRA Prohibited Transactions?
A: Understanding what constitutes a prohibited transaction is very important when it comes to making investments within your IRA. 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, linear descendant, and any spouse of linear descendant)." IRS Publication 590, IRC 4975 is the section that lays out the rules on prohibited transactions. Prohibited transactions generally involve one of the following:

(1) doing business with a disqualified person
(2) benefiting someone other than the IRA
(3) loaning money to a disqualified person
(4) investing in a prohibited investment.

In plain English, prohibited transactions are those transactions that violate the basic intent of the IRA. Your IRA must benefit, rather than benefiting you personally. In other words, there can be no "self dealing" transactions.

Q: Who is a disqualified person?
A: The IRA holder and his or her spouse, the IRA holders ancestors, lineal descendants and their spouses; investment advisors and managers, any corporation, partnership, trust or estate in which the IRA holder has a 50% or greater interest; and anyone providing services to the IRA such as a trustee or custodian.

Q: What are some types and examples of prohibited transactions and / or self-dealing transactions?
A: 1. You can't purchase a home from your daughter or purchase a property from yourself that you already own. You can only invest in new properties and purchase properties from an individual who is not considered a disqualified person.

2. You purchase a vacation home, hunting property or a golf course as an investment for your IRA but you yourself cannot personally use it. All the purchases made by the IRA LLC MUST be for investment purposes only.

3. You cannot perform maintenance on a property that your IRA owns and pay yourself for work that you do on the property such as repairing a leaking faucet.

Q: What are IRA Prohibited Investments?
A: The IRS code outlines what types of investments are not allowed. The prohibited investments include: artwork, rugs, antiques, metals, gems, stamps, collectible coins, beverages, stock in a s-corporation, and certain other tangible personal property.

Q: What about S-Corporations, can I form an IRA S-Corp?
A: S-Corporations do not allow IRAs as investors; they only allow individuals as investors. Therefore, it isn't so much that IRAs are prohibited from investing in S-Corporations rather that S-Corporations don't permit having an IRA as a shareholder. It is likely that the investment of the IRA would revoke the sub-s status of the corporation.

Q: Can I buy Stocks, CDs, Bonds, Options, in my Self-Managed IRA LLC?
A: Yes. There is no sense in letting your retirement funds sit on the sidelines while you are looking for investments in other asset classes. You can invest in publicly traded stocks, CDs, mutual funds, annuities, bonds, stock options, futures, etc. If you are an active day trader, with checkbook control, you will be able to trade using your IRA funds in a timely fashion, opening up the world of trading calls and puts, etc.

Q: I have a 401K with an old employer. Can I move it into the Self-Managed IRA LLC?
A: Yes. You can move these 401K funds into the Self-Managed IRA LLC. We do it all the time. We can facilitate the rollover so that you can unlock those funds for your next real estate purchase.

Q: I have a 401K with my current employer. Can I move it into the Self-Managed IRA LLC?
A: It depends on the 401K plan document for your current employer. Most of the time, you cannot move money from a 401K plan if you are currently working for the company. In some cases, you may be able to unlock a portion of your 401K funds and self direct those funds.

Contact your company retirement plan representative to get the plan document. You will want to check and see if you can do an "in-service transfer". If you can, then read the details - you might be able to transfer all or a part of your IRA to a Self-Managed IRA for investing.

Q: I have several IRAs and old 401Ks. Can I combine them?
A: Yes, most of the time they can be combined to maximize your buying power. The only restrictions are on 401(k) accounts with an active employer and when trying to combine a traditional IRA and a Roth IRA. For the latter event, they may still be invested into the same Self-Managed IRA LLC so that you still have maximum buying power, but they will be taxed differently.

Q: Is the transfer above a taxable event?
A: No… and neither is a direct rollover.

Q: Can I invest in LLCs and LPs?
A: Yes.

Q: Can I invest in an LLC I manage?
A: Yes.

Q: If I don't want to be the manager of my IRA's LLC, can I authorize access to another person (my accountant, say?)
A: Yes.

Q: Can my IRA partner with another unrelated individual on investment properties?
A: Yes.

Q: Can my IRA invest in secured and unsecured notes?
A: Yes.

Q: Can I manage rental properties owned by my IRA, and if so, is there a limit to how many?
A: Yes, and there is no limit.

Q: Must I hire a bookkeeper for rental properties owned by my IRA?
A: No.

Now that you know there are other options out there,
the ball is in your court - it's time to act now:

Copyright © 2013 Easy IRA Solutions
PO Box 109
Morris, IL 60450
(866) 480-7784

Disclaimer/Disclosure: Easy IRA Solutions does not offer investment, tax, financial or legal advice to clients. Individuals who believe they need advice should consult with the appropriate licensed professionals. This website is dedicated to providing educational information regarding self-managed accounts and possible investment scenarios. It is in no way intended as investment advice.