Robert D. House, Certified IRA Specialist

Frequently Asked Questions

You Just Know

 

What is a Self-Directed IRA?

Legally speaking, a self-directed IRA is no different than any other IRA. Having a self-directed IRA simply means that you are allowed to direct the investments of the IRA. Many custodians claim that they allow you to self-direct your IRA investments but then turn around and restrict what you can invest in. A truly self-directed IRA allows you to make the decisions without restriction.

 

Is this a new investment tool?

No. There are two TRILLION dollars held in retirement accounts; however, only about 3% of retirement accounts are self-directed and only about 2% are invested in Real Estate. But what most people don’t know is that the stock market isn’t your only investment choice for your IRA. You have been able to invest in Real Estate since the day IRAs were created. That was about 30 years ago!

 

Why haven’t I heard of this before?

Who would tell you? Your stock broker? They will only let you invest your IRA in investments that their firm offers. At a bank you will be limited to CDs. At a brokerage firm you will be limited to stocks and bonds. As a consequence, and unfortunately for many investors, it has been a well kept secret that they have other options for their IRAs. The traditional investment community has had control of over 97% percent of retirement accounts, and they have been making a great living off your accounts. Why would they want to let you know of alternatives that they wouldn’t benefit from?

As investors have become more disillusioned and frustrated with traditional investment choices, they have begun looking for alternatives. After the steep stock market decline, corporate scandals and corruption (e.g. Enron, ImClone, Worldcom) and many investors seeing their retirement accounts cut in half, they are ready to take control of their own investments. They often want more tangible investments such as Real Estate.

However, when they ask their current custodians / brokers, they are typically told that such investments are illegal, too complicated or that it can’t be done. But those are ignorant and self-serving responses. Although those custodians / brokers may not allow it, it can be done. It is just likely you can’t do it through your current custodian so they financially suffer if you make a move. They aren’t going to tell you about it.

 

Are there downsides?

The only downside is that some people don’t want to be in charge of their own retirement investments. They are happy having someone else make all the decisions. A self-directed IRA is not right for them.

For the rest of us who want to be involved in our retirement investments and make decisions that will affect our retirement, there are no downsides. Just be aware of the prohibited transactions / restrictions (no self-dealing). We firmly believe that you are the best steward for your money. Nobody cares as much about your retirement as you do.

 

Do I get complete control?

Having a self-directed IRA is one step toward obtaining complete control. To obtain a truly self-directed retirement account you need the IRA LLC Doctor.

This is the structure that gives you checkbook control. When you simply establish an account with a self-directed custodian, you are still required to get permission from the custodian before making each investment. This is time consuming, cumbersome and more expensive than it needs to be. With the IRA LLC Doctor you are then able to make investments the minute you decide to without getting permission from anyone. You have the checkbook. You are in control of your retirement money. We firmly believe that you are the best steward for your money. Nobody cares as much about your retirement as you do.

 

How do I know that this is legal?

This is a question that is frequently asked by investors who have never heard that they could invest in anything other than stocks and bonds. They have no idea that they can invest in Real Estate and many other investments. However, Real Estate has been an allowed investment since the day IRAs were created almost thirty years ago.

Check out the IRS summary here

 

Can I transfer funds from a 401K, IRA, Sep IRA, Roth IRA, or 403b and direct investments myself?

Yes. You can self direct all of these types of accounts.

 

Can my IRA purchase Real Estate I already own?

No. This would be considered a prohibited transaction (see IRC 4975). You many not purchase property which is currently owned by you or any other disqualified person (see below). You would need to find another piece of Real Estate that you don’t already own to purchase.

 

What is the easiest way to buy Real Estate using my IRA?

The IRA LLC Doctor is the way to get control over your IRA. A self-directed IRA account isn’t enough. You will still need to get permission and have someone else sign off on all investments you want to make. If you are ready to be in control of your IRA, you need the IRA LLC Doctor.

 

My IRA is small. Can I personally co-invest with my IRA?

It is not a prohibited transaction for you to co-invest with your IRA. However, there are certain formalities that need to be adhered to, and there are some situations where it isn’t advised.

 

Can my IRA co-invest with friends?

Yes. IRAs may purchase an undivided (and proportionate) interest in Real Estate.

 

May I use my IRA funds to make improvements or renovations?

Yes. In fact, 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 all profits made on the property are returned to the IRA. This makes sense because it is an investment of the IRA.

 

Can I buy vacation property?

Yes. Doing so would not constitute a prohibited transaction. However, you cannot vacation there.

 

Can my IRA LLC make loans to other individuals who want to buy Real Estate?

Absolutely. And this is done frequently, and it is a great investment for your IRA because the loan can be secured by the property.

• Real Estate developer? - Yes !
• Businesses or companies? - Yes!
• Loans to a friend? - Yes!

Do taxes and penalties apply when I take money out to buy Real Estate?

No. You DO NOT take money out to purchase Real Estate or anything else you want to buy. It is just a purchase of your IRA LLC. There are no taxes or penalties. Instead of buying 1000 shares of Microsoft or any other typical stock, your IRA is just making a different type of investment. The method of doing so is different but the tax ramifications are the same.

 

Are there any special taxes that apply when I use leverage?

Unrelated debt financing income tax would apply.

 

Does it still make sense to use leverage?

Absolutely. Because of your increased buying power when you use leverage, the profits you make from the ability to use leverage can greatly outweigh the tax associated.

 

 

 

Robert House