Archive for November, 2009

ASK a Self Directed IRA/401k Question and get a Live Response!

Tuesday, November 24th, 2009

I have just updated the website, to include a LIVE CHAT feature. So now you can ask a question about the Self Directed IRA or 401K or any other product for that matter, and get a LIVE person to answer your questions immediately. So, try it out! Ask Away…

Top 10 Self Directed IRA/401k Mistakes – #10 Self Directed IRA Owners Flipping Real Estate is Not UBTI

Sunday, November 22nd, 2009

The receipt of rental income is considered to be passive income and therefore not subject to UBTI. However, some self directed IRA owners fall into the trap of thinking that this means that they can buy and sell properties on a routine basis (i.e. flipping), and that this would not be active income or running a business.

Even though there are not any bright lines as to when buying and selling real estate through your self directed IRA would constitute UBTI, the general guidelines will be based facts and circumstances. Some of the factors that would be used to determine if the real estate transactions would meet the requirement for UBTI are:

  • The purpose for which the property was acquired
  • The frequency, continuity and size of sales
  • The extent of improvements
  • The activities of the owner in improving and disposing of the property
  • The purposes for which the property was held
  • The proximity of purchase and sale (i.e. how close together were the transactions)

In general we advise clients that flipping or turning one property may or may not meet the UBTI standard. However, if you show a routine pattern of buying and selling property and if there appears to be the intent of turning properties for profit, then you will most likely be subject to UBTI.

For more information on self directed IRAs go to:

Top 10 Self Directed IRA/401k Mistakes – #9 Self directed IRA owner attempts to receive fees and commissions from IRA transactions

Sunday, November 22nd, 2009

There are cases where the self directed IRA owner is a real estate agent and they want to earn a commission from selling property to their IRA or some other disqualified party’s self directed IRA. Such a transaction would be viewed as conducting a transaction with your IRA or receiving an indirect benefit. Either way, it would be considered a prohibited transaction.

Another common scenario is that someone is a good money manager or investment guru type and they want to bring in or combine several family member’s IRA account and manage it as a pool. In exchange, the money manager (a related and disqualified party) wants to earn fees or commissions from their activities. In this case the money manager is a disqualified party, and they receiving a direct benefit from the IRA accounts of disqualified persons. This clearly would not be allowed.

A disqualified person can be paid reasonable fees and expenses for providing services to the IRA. Such an example could be that your spouse is a CPA and your self directed IRA LLC hires your spouse to do tax work. There are not any clear lines as to what constitutes reasonable. So, our position on any transactions with any disqualified party is just don’t do it!

As tempting and harmless as some of these transactions appear to be, we feel its better to steer clear of having to potentially defend your actions in the event of an audit.

These scenarios and opinions expressed above are for informational and educational purposes and are not intended to be an exhaustive list of scenarios. If you feel your situation may have an exception or you require a more definitive opinion then you should contact your personal tax advisor.

To learn more about self directed IRAs go to:

Top 10 Self Directed IRA/401k Mistakes – #8 Self directed IRA owner thinks a passive investment in active business is not subject to UBTI

Sunday, November 22nd, 2009

UBTI is the tax that levels the playing field for tax exempt entities that invest and compete against businesses that pay taxes. Self directed IRA account owners find unique business or investment opportunities in small businesses. Even though the opportunity is compliant and reasonable, and the IRA is passively invested, this does not necessarily mean that that the self directed IRA is not engaged in an active businesses.

Regardless of how involved the self directed IRA account owner is in the business, the business is active and it is competing against other businesses that are required to pay taxes. As such, the IRA would be subject ti UBTI tax regardless of the account owners involvement in the business.

To learn more about self directed IRAs go to:

Top 10 Self Directed IRA/401k Mistakes – #7 IRA owner uses personal assets or “Sweat Equity” for the benefit of the IRA

Sunday, November 22nd, 2009

A self directed IRA owner is clearly allowed to guide and manage the investments of the self directed IRA. The management can be relatively involved and substantial. As an example, the self directed IRA owner (or even the self directed IRA LLC manager – the account owner), could potentially expend considerable effort in finding the right real estate investment for the self directed IRA. This effort could likely be in the form of visiting many properties, speaking with many real estate advisors and experts, crunching numbers, etc.

However, a prohibited transaction or indirect benefit line could be crossed if the self directed IRA owner (or as the IRA LLC manager) were to use their personal tools and equipment to improve the property (e.g. use your saws, materials, truck, employees, to add a new roof). Another potential mistake is the self directed IRA owner provides all of the labor for making the improvements.

The general rule of thumb is that you are allowed to provide the necessary care and management of the self directed IRA’s assets, but you should draw the line at providing “sweat equity” or use and benefit of your personal assets.

To learn more about self directed IRAs go to: