Things To Avoid With A Self Directed Ira Real Estate Plan (Part Two)}

Things To Avoid With A Self Directed IRA Real Estate Plan (Part Two)

by

Gordi

SHIRLEY and NEIL decided to buy a duplex using their self directed IRA real estate plan, so they instructed their IRA custodial manager to buy the duplexes jointly using both of their IRAs to borrow 60% of the purchase price from a national non recourse lender. The units were fully rented and the net operating income was enough to make the mortgage payments each month. About six months after buying the units a fire started in one of the kitchens and smoke damage meant both unit were made uninhabitable, until the damage had been repaired and the units cleaned up.

Of course Shirley made a claim on her insurance immediately, but the insurance money did not come through in time for the IRA to meet the next mortgage payments. Shirley decided to make the payment personally so her IRA would not be in arrears. This could have been considered an excess contribution, as Shirley was only entitled to make $5000,00 in contributions per year. She should have paid the money to her IRA and let that pay the mortgage. The next month the insurance company paid the claim money to her IRA. If Shirley had another month of no cash flow she could have made contributions to her IRA and claimed them as excess contributions, subject to an excess contribution filing and 6% potential penalty annually, until the excess was removed or the contributions she was entitled to make yearly added up to the amount of the excess. NEIL had an investment property that he had purchased at a good price. However, he realized that his tax benefits would be much better, if his self directed IRA real estate plan owned the property. He knows that he can not sell his property to his IRA without A Prohibited Transaction Exemption. And he knew that that would not be forthcoming, so he decided to sell the property to his friend Edward. Edward was not aware that Neil was trying to bypass the Prohibited Transaction rules, Neil just told Edward that he needed to transfer some assets, and he would sell the property to Edward for a nominal amount and Neil would pay Edward for helping him out, The Title company would record the transaction in Edwards name and Neil would pay all the fees and taxes.When the sale had gone through Neil directed his IRA custodial manager to buy the property from Edward. The IRA custodial manager worked in with the Title Company to follow Neils directions. While this was going on Edward rang up the IRA manager and asked how IRAs could buy property as he had not heard of this before, Edward mentioned he was just doing this deal with a friend and he would like to do the same thing. The manager told Edward he would look at the transaction more closely and would get back to him, and yes, he could use his IRA to buy and sell property. Neil was right, the Dept of Labor would not grant him a Prohibited Transaction Exemption. The property was not an arms length transaction and Neil was in the process of entering into a prohibited Transaction with his IRA and was defying the rule that said you can not do something indirectly that you can not do directly. Edward told Neil what he had learned from the manager, but NEIL already knew, as the manager had rung him up straight away. The upshot was that NEIL lost $5000,00 because he bent the rules, Edward didn’t want the property so he gave that back. Neil having received an lesson about bending the rules, kept on the straight and narrow after that, and went into a partnership in a self directed IRA real estate plan with Edward. As usual if this all seems too much or you just can not be bothered, there is a simpler more TURNKEY solution to investing in real estate and IRAs.. Just click the url at the bottom of this article and go to my website. There you will find much more information.

Gordon Hall is an ardent reviewer of IRAs and other retirement funds. Visit his website now at http://www.double-your-ira.com to discover which retirement funds Gordon recommends after far ranging and extensive comparisons.

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Things To Avoid With A Self Directed IRA Real Estate Plan (Part Two)}