Frequently Asked Questions

Why Real Estate?
Why Real Estate In An IRA/401k?
What Are Allowable Investments?
What Is A Custodian?
How Do I Purchase and Sell Real Estate Investments?
How Do I Finance The Purchase?
How Do I Ensure IRS Regulations Are Met?
May Property Be Owned Fractionally?
Are There Additional Requirements?
Who actually holds the money and/or assets of my Self-Directed IRA?
What is a Rollover?
What is a Transfer?
How many IRAs can I have?
How is a Self-Directed IRA with an independent administrator different from the one I have with a traditional administrator?
Can I buy a house with my IRA?
Can I sell my house to my IRA?
Can I purchase a home with my IRA for future use after retirement?
Can my spouse receive compensation for managing assets, such as real estate, for the IRA?
What is an Account Administrator?
What transactions are prohibited?

Why Real Estate?
Through a Self-Directed IRA/401k you can purchase investment property, condos, multi-family units, and land just to name a few. Real estate, over any other investment, has the potential of increased safety of principle (tangible asset), income (rent) and growth (appreciation) all wrapped into one investment. For the income investor, a Self-Directed IRA/401k also allows you to loan money in the form of a mortgage (secured by real property) at interest rates far superior to those of traditional investments.

Why Real Estate In An IRA/401k?
The simple answers are:

• An alternative to traditional investments that are often difficult to understand, monitor, and value.
• A means for growth and income through a tangible, less volatile investment vehicle.
• Tax free or tax deferred* growth and income without complicated 1031 exchanges or other tax strategies.

*Depending on the status of your individual plan

What Are Allowable Investments?
If you are like most Americans, the majority of your wealth and net worth has been built through the appreciation of your primary residence or other real estate investments. Now you can achieve these same types of returns within your retirement accounts. This can be done through such real estate investments as:

• Residential Property
• Condominium
• Multi-family Units
• Raw or Improved Land
• Commercial Property
• Rental Property
• LLCs
• Mortgages/Mortgage Notes

What Is A Custodian?
There are very few self-directed IRA/401k custodians in the United States. In order to be a custodian for self-directed product, the custodian is known as a "passive custodian". This simply means that they are obligated by law to only provide the custodial and administrative services for the qualified plan. They can provide NO investment advice. This tremendously reduces the fees associated to traditional investments because you, the investor, make all of the investment decisions.

How Do I Purchase and Sell Real Estate Investments?
It is important that you work with a Realtor who understands qualified plan purchases. A real property purchase or sale is initiated by executing either a Buy or Sell Direction Letter For Real Estate. The property is purchased in the name of your IRA. All contracts and addendums must be filled out accordingly. Property that was previously owned by you is disqualified and may not be placed into your IRA. The simplest way to purchase the property is with the cash available in your retirement account.

How Do I Finance The Purchase?
You may finance or leverage any property you purchase within your account. The loan must be a non-recourse loan. This is not your traditional mortgage. Be sure that you work with a lender familiar with non-recourse lending. As the property is an asset of the Plan, repayment of the underlying debt must come from contributions to or income from the property or other assets in the Plan. This will trigger certain additional taxes and should be well understood by you and a CPA prior to purchasing a property.

How Do I Ensure IRS Regulations Are Met?
The entire transaction must flow through the tax-free or tax-deferred retirement account. The escrow must be opened by the account. Only Qualified Plan or IRA funds may be used as good faith deposits, down payments, or purchase money. Always consult a CPA before assuming that a particular tax law pertains to your individual situation. If title is vested in individual account holder names, it may not be subsequently sold to the tax-deferred or tax-free account.

May Property Be Owned Fractionally?
While fractional interests in real property may be purchased or sold, such interests may not be bought from the beneficial owner of the Plan or IRA or family members of linier decent. In many instances, it is best to consider forming an LLC and having your qualified plan own a given percentage of that LLC. Either your attorney or one in our network of professionals can assist you in determining the best method of ownership.

Are There Additional Requirements?
When purchased, these properties become assets of your Plan or account. In addition:

• It must be for investment purposes only.
• Neither you, your spouse, nor your family members (other than siblings) may have owned the property prior to its purchase by your Plan.
• Neither you nor your family members (other than siblings) may live in or lease the property while it's in your Plan.
• Your business may not lease or be located in or on any part of the property while it's in your Plan. You may receive any property as a distribution from your Plan as a retirement benefit.

Who actually holds the money and/or assets of my Self-Directed IRA?
Cash, property titles and all other assets of the IRA are held by a trustee or custodian. Unlike a qualified retirement plan, the law requires that the trustee or custodian be a bank, federally insured credit union, savings and loan association, or an entity approved by the IRS to act trustee of custodian.

What is a Rollover?
If you receive an eligible rollover distribution from your employers qualified pension, profit-sharing or stock bonus plan, annuity plan, or tax-sheltered annuity plan, you may roll over all or part into an IRA. There are three categories of rollovers.

• A direct rollover from a qualified plan to another qualified plan or an IRA (to avoid 20% withholding).
• A rollover from a qualified plan to an employee, then redirected to another qualified plan, or IRA (must be accomplished within 60 days).
• A rollover from one IRA to another IRA or another plan (limited to one per year).

What is a Transfer?
With a qualified retirement plan, you are limited to transfers only with the same trustee, usually within one mutual fund and usually no more often than quarterly. One of the most valuable features of an IRA is the ability to transfer investments from trustee to trustee without tax penalty. Transfers from one IRA to another are not subject to rollover rules, such as time and withholding.

How many IRAs can I have?
As many as you want. You may want to keep your different investments in separate IRAs so you can readily see what each is doing.

How is a Self-Directed IRA with an independent administrator different from the one I have with a traditional administrator?
IRAs held by your bank are normally directed by the bank into its mutual funds or CDs and provide minimal risk and minimal return.

IRAs held by your stock brokerage company are typically directed into mutual funds and stock portfolios that are sold by that brokerage, and you are limited to those products offered by that particular brokerage.

IRAs with an independent administrator allow you to self-direct your money to any investment allowed by law. Not only are you allowed to invest in all of the products offered by the traditional administrator, you are now allowed to invest in leveraged or unleveraged real estate, trust deeds, unsecured notes, improved or unimproved real estate limited partnerships (public and private) and more.

Can I buy a house with my IRA?
Yes. If it is not for your personal use.

Can I sell my house to my IRA?
No. You can sell it to your neighbors IRA though.

Can I purchase a home with my IRA for future use after retirement?
Yes. You may want to purchase a home with your IRA now and rent it out until you retire. Assuming that you will retire after age 59 1/2, you need only to take a distribution of that asset at retirement. There will be no penalties. You may have tax to pay depending on the type of IRA you have.

Can my spouse receive compensation for managing assets, such as real estate, for the IRA?
Yes. As long as the fees are reasonable.

What is an Account Administrator?
IRAs can be established and funded through the services of banks, mutual fund companies, savings and loan associations, insurance companies, regulated investment companies and other financial institutions. The account administrator is the entity designated as such in the trust or custodial agreement. The account administrator has full responsibility for the operation of the account. The same entity may serve as both the plan administrator and the custodian or trustee. Account administrators typically have the following responsibilities:

• Trust or custodial agreement approval with the IRS.
• Filing of appropriate IRS forms.
• Review of documentation of investment vehicles.
• Accounting or IRA account.

Administrators typically do not accept the following responsibilities:

• Approval of investment, relating to type of viability.
• Reporting of UBI (unrelated business income).
• They cannot offer any investment vehicles of their own or for which they are compensated.

What transactions are prohibited?
The following are defined as prohibited transactions when they involve the accountholder:

• Borrowing money from the IRA.
• Selling property to the IRA.
• Receiving unreasonable compensation for managing assets for the IRA.
• Using the IRA as security for a loan.
• Buying property for personal use with the IRA.
• Investment in collectibles or life insurance policies.