July 18, 2007
Webinar
“Self-Directing Your Retirement Plan for Real Estate: What Can I Really Do?”
Mathew N. Sorensen, J.D.
www.kkolawyers.com
Cedar City ~ Las Vegas ~ Beverly Hills ~ Salt Lake City Telephone 435.586.9366 / Facsimile 435.586.9491
Disclaimer- Although the information contained in this Presentation may be
extremely useful and helpful, please understand that the presentation of this information does not constitute an attorney-client relationship. Moreover, the information contained in this Presentation is for general guidance only. It is strongly recommended that each individual or entity obtain their own legal advice, particularly applied to their own set of circumstances, facts and specific situation. Kyler Kohler & Ostermiller, LLP is not responsible or liable for any advice that is taken and applied in a situation without direct consultation and representation specific to that individual’s or company’s needs.
Instructor Notes
Prohibited Transactions
Cannot Buy From Or Sell To…
¾ The IRA Owner.
¾ Plan Decision Maker.
¾ Plan Service Provider.
¾ Spouse, Parents, Children & their Spouses.
¾ Corporation, Partnership, Trust, or Estate where
50% or more is owned by a prohibited party.
¾ Officer, Director, 10% or more share holder, or
highly compensated employee (highest paid).
Make it profitable…
Wiggle Room
¾
¾ The IRS allows your The IRS allows your IRAIRA to sell to and buy from to sell to and buy from brothers, sisters, aunts, uncles, cousins, nieces,
brothers, sisters, aunts, uncles, cousins, nieces,
nephews, and step Relatives.
nephews, and step Relatives.
¾
¾ IRS Ruling 2004IRS Ruling 2004--8: In a 8: In a Roth IRARoth IRA, brother and , brother and sister are considered a Prohibited Party, so you
sister are considered a Prohibited Party, so you
cannot sell to or buy from them in your
Real Estate is the “Key”
Rules are specific to real estate
¾ Must be Real Estate Operating Company if the
Retirement Plan and IRA Owner own more than 25% of the LLC/LP. See 29 CFR Section 2510.3-101.
¾ Cannot have 100% control of LLC/LP.
¾ If not Real Estate or you want to take a salary
for managing the company, you, your SDRPs and Prohibited Parties Cannot own 50% or more of the company.
The Right Structure for You
Option 1 Tax Qualified Plan $$ Self Directed Retirement Plan $$ Raw Land $$ LOAN Secured by Real Estate - No Debt - No LLC/LP - No Partners - Direct Investment in name of IRAMake it profitable…
For Illustration Purposes Only May not be reproduced without the Express written permission of KKO Lawyers©
Create or Transfer
Option 2 Rental Property (Income Producing) Non-Recourse Loan Mortgage Company - Non-Recourse Debt - No Personal Guaranty - No Sweat Equity - No LLC/LP - No Partners - Direct Investment in name of IRA
The Right Structure for You
Make it profitable…
Tax Qualified Plan $$ Self Directed Retirement Plan $$For Illustration Purposes Only May not be reproduced without the Express written permission of KKO Lawyers©
Create or Transfer
Option 3 - Non-Recourse Debt - Single Member LLC - No Personal Guaranty - No Sweat Equity - No Partners - Direct Investment in name of IRA Single Member LLC
The Right Structure for You
Make it profitable…
Raw Land $$ LOAN Secured by Real Estate Tax Qualified Plan $$ Self Directed Retirement Plan $$For Illustration Purposes Only May not be reproduced without the Express written permission of KKO Lawyers©
Create or Transfer
Real Estate
Option 4 Rental Property (Income Producing) Non-Recourse Loan Mortgage Company - Non-Recourse Debt - Single Member LLC - No Personal Guaranty - No Sweat Equity - No Partners - Direct Investment in name of IRA Single Member LLC
The Right Structure for You
Make it profitable…
Tax Qualified Plan $$ Self Directed Retirement Plan $$For Illustration Purposes Only May not be reproduced without the Express written permission of KKO Lawyers©
Create or Transfer
Real Estate
Option 5 50% Limited Liability Co. or Limited Php. IRA Owner 40-45% Mortgage Company Guaranto Rental Properties 3rd Party Owner 5-10%
- Recourse Debt - YES - Partners -YES
- LLC/LP- Yes
The Right Structure for You
Make it profitable…
Tax Qualified Plan $$ Self Directed Retirement Plan $$For Illustration Purposes Only May not be reproduced without the Express written permission of KKO Lawyers©
Create or Transfer
Real Estate
Self Directed IRA Issues
Prohibited Transactions
Transactions with Prohibited parties Use of Property
Compensation of IRA owner
Unrelated Business Taxable Income (“UBTI”)
1. Rents, interest, dividends and capital gains exempt.
2. Watch out for development activities and non-real estate activities.
Unrelated Debt Financed Income (“UDFI”)
1. Tax is paid on the portion of gains attributable to the debt on the property.
Administration Duties
Annual report/valuation to Custodian Bookkeeping and tax return
Self-Directed Plan Compliance Issues
• Must be Real Estate Operating Company if the Retirement Plan
and IRA Owner own more than 25% of the LLC/LP See 29 CFR Section 2510.3-101
• Can’t have 100% control of LLC/LP • Prohibited Transactions
Transactions with Prohibited parties Use of Property
Compensation of IRA owner
• Administration duties
Annual report/valuation to Custodian Bookkeeping and tax return
BEWARE!!
This is not a comprehensive list, and also requires
a properly drafted Company document!!
Self-Directing Your Retirement Plan for Real Estate: What Can I Really Do?
