Self Directed IRA
Self-Directed Individual Retirement Accounts (IRAs) provide two major benefits. First, the United States government allows the write off or tax deduction of any contribution for IRAs. Second, when the self-directed IRA sells the appreciated asset, there is no tax due, and those profits are returned to the IRA.
Your IRA or 401(k) can purchase and sell the following without a capital gains tax:
- Commercial real estate
- Promissory Notes
- Private Stock
7 Steps to buy real estate in a tax advantaged retirement plan:
1. Open/contribute to a Self-Directed IRA.
a. Fund account with IRA transfer, direct roll over or contribution.
2. Locate investment.
3. Make an offer on behalf of Self-Directed IRA.
4. Complete buy direction letter.
5. Review and approve title documents.
6. Deed recorded in Self-Directed IRA name.
7. Expenses paid from Self-Directed IRA.
a. Taxes, Home Association Fees, Insurance, Utilities.
Primary Rules for Self-Directed IRAs
Self-directed plans prohibit self dealing and usage. As the benefactor of the IRA, you cannot use or derive benefit from the property. You cannot self manage the property and pay yourself a property management fee as an expense. In addition, disqualified persons are also prevented from using the property. Disqualified persons include your spouse, son, daughter, mother, father, grandparents, grandchildren and those of your spouse including your mother in law, father in law, son in law and daughter in law. A gray area where the IRS has not clearly excluded is your brother or sister.