IRA question

[UTpowder]

Not sure if this should go here or under tech talk.

We have been looking for lot for a t the lake for a few years now. Been using my parents place but want our own. Found our perfect lot today. Two adjoining lots. Have enough to pay cash for one but really want both to ensure easy access and protected views. We are at least 10 years away from building as I’m still working for at least 15 more years. Have plenty of cash in an IRA. Don’t want to take it out but my question is can I pull some of it and use it to buy one of the lots under a self directed IRA. I know I can’t use the lot if I do so. But could I do it and in 10 years buy it back from myself (from my IRA). Its just going to be sitting for 10+ years anyway without us using it anyway.

Or should I just get a loan and forget the IRA altogether?

Thanks

[m2711c]

remember bobby sands....

[splat]

tl;dr Free Ireland!

[Benny Profane]

No. Severe taxes and penalties. Borrow cheap money now.

[UTpowder]

Would there be penalties since I’m still leaving it in my traditional IRA? My accountant had told my before that I could buy real estate inside the IRA but I just couldn’t personally occupy it. I’m this case I wouldn’t be until I bought it back from myself

[UTpowder]

I’ll ask my accountant in the morning but my real estate agent said she could have an offer ready first thing in the morning if I had things ready. Hot market. Don’t want to lose this. Lost a couple other lots in the past because I pussied around trying to figure every detail out first.

[Hopeless Sinner]

50% down and at 3%/30yr you can't loose on a loan. This will give you the best chance to actually buy the lots.

You or a close family member can't use the lot but more distant relatives can as well as obviously non-relatives. Not all IRA custodians are willing to mange real property, for instance, Vanguard does not allow this type of arrangement. You do have the ability to move part of your IRA to another custodian if you're current does not allow it.

[Hopeless Sinner]

No. Severe taxes and penalties. Borrow cheap money now.

The OP wants to self-direct his IRA, he's not wanting to withdraw the money and pay income tax and the 10% penalty. Also, one can take a loan from an IRA and pay that back as my wife did years ago for certain reasons like paying for a home, education, or health care. Not sure if lots at the lake are allowable though.

[UTpowder]

Is it possible to sell it back to myself from the IRA? Really the biggest downside I see is not having my money growing in the market. But I’m a bit concerned anyway with where the markets might go

[Hopeless Sinner]

Is it possible to sell it back to myself from the IRA? Really the biggest downside I see is not having my money growing in the market. But I’m a bit concerned anyway with where the markets might go

Not that far down the road in my research to answer that, but this is imho. Eventually it's going to get sold from your IRA at which point you might (hopefully) have made an increase in value so there's a taxable event. Selling it to yourself at near market value w the proper appraisals shouldn't be an issue.

Everybody is a "bit" concerned about the market 24/7/365, but you have a 40-50 year time horizon. My concern would is what you mention and that's being out of the market. If you've got your rainy day fund, in addition to the cash to pay for 1 lot in full, and have decent health and earning potential I'd do the loan. If you run into trouble - one or both lots could always be sold.

[Kinnikinnick]

Self dealing? So you’ll buy the lot with the IRA, then later sell it to yourself at a low price?

Yeah so look at it this way. Uncle Sam is your partner in the deal since he put the tax that you would have owed in. You still owe tax. So will your partner be happy when you short change him to sell the lot to yourself at a low price?


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[billyk]

Interesting. Never heard about directly buying specific properties in an IRA. I may need to research that for my own benefit.

However, I do have experience taking out loans against my 401K for buying property. The nice thing about that is the interest on the loan gets paid back to you, not some bank. However you do miss out on what you might have made with that loan money in the stock market while you are still paying the loan back. But if real estate inflates faster than the market…

[VTeton]

Interesting. Never heard about directly buying specific properties in an IRA. I may need to research that for my own benefit.

However, I do have experience taking out loans against my 401K for buying property. The nice thing about that is the interest on the loan gets paid back to you, not some bank. However you do miss out on what you might have made with that loan money in the stock market while you are still paying the loan back. But if real estate inflates faster than the market…

One of the issues w buying RE with iras is I think you forfeit the tax benefits of owning RE. Also some issues regarding debt on ira owned RE. I went down the rabbit hole with a bunch of corporate tax lawyers and came back with a NO. My circumstances were very specific though. Involved complex partnership agreements and debt.

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[Benny Profane]

I misread at first. Didn't realize this was within the IRA.

Yeah, you lose the tax advantages of owning RE if you do this. I still say, don't fuck with the IRA, borrow the money, which is as cheap as it gets.

[MyNameIsAugustWest]

I agree with Benny on this one. Money is so cheap right now and with the cash you have already, you should be able to get crazy low interest rates. And you can have escrow pay your taxes for you so it's one less thing to have to remember to set aside.

[BC.]

^^^Piling on…..I try never to mess with my 403B or Roth IRA’s..….Let the money sit, keep growing…take a loan (HEL/HELOC) to pay for that other lot. (Rates are so low, it’s hard to pass up that money that you can spread out over time)

Good luck…I’ll be headed into this realm again soon….Hoping by the time I’m ready, RE prices will go back to somewhat normal/something we can afford.

[Marshall Tucker]

don't fuck with the IRA, borrow the money, which is as cheap as it gets.

Benny is right. speaking as a CPA. IRAs are (obviously) meant for you to put money in, leave it the fuck alone, and pull it out a lllloooonnnngg time from now. When you start trying to jack that around you can get into a lot of trouble in a hurry. Sammy is swinging a huge fuckin bat here.

[Hopeless Sinner]

I misread at first. Didn't realize this was within the IRA.

Yeah, you lose the tax advantages of owning RE if you do this. I still say, don't fuck with the IRA, borrow the money, which is as cheap as it gets.

Please explain which tax advantages are lost.

[dschane]

Is it possible to sell it back to myself from the IRA? Really the biggest downside I see is not having my money growing in the market. But I’m a bit concerned anyway with where the markets might go

You can ask the bank that will let you buy real estate within the IRA (I don't believe there aren't many of them or at least there weren't around 2005 when I looked into this), but my recollection is that the answer is no, you cannot sell/lease real estate that is held in your IRA to yourself or any immediate family member.

That said, you might be able to "withdraw" the real estate from the IRA if the plan is to sit on the land until you're of the age when you can withdraw from the IRA without penalty. If it's not a Roth, I imagine there are tax implications.

This is TGR advice from a non-expert, so take it with grains of salt.

[splat]

I’ll ask my accountant in the morning but my real estate agent said she could have an offer ready first thing in the morning if I had things ready. Hot market. Don’t want to lose this. Lost a couple other lots in the past because I pussied around trying to figure every detail out first.

Every house in Reno has been a bidding war above asking for months, I hear.
People that don't go big can be heard pissing and moaning.

[Benny Profane]

Please explain which tax advantages are lost.

Real estate is a tax game, and it gets more complex the higher up you go. Re: Trump. He hasn't paid taxes for, like, ever.

[liv2ski]

Lots of bad advise here. You can buy RE in an IRA, BUT the property can not be self managed or used by you. Being this is a lot, there is no rent to manage, so you are fine paying property taxes, etc from the IRA as they come due. There can be no commingling of funds, so keep detailed proof the IRA covered all expenses. Once you sell the property the gain is not going to be taxed at sale as it was in the IRA. Ask your CPA if your can buy it down the road from the IRA, that is the only part I haven't investigated before.

[Hopeless Sinner]

Lots of bad advise here. You can buy RE in an IRA, BUT the property can not be self managed or used by you. Being this is a lot, there is no rent to manage, so you are fine paying property taxes, etc from the IRA as they come due. There can be no commingling of funds, so keep detailed proof the IRA covered all expenses. Once you sell the property the gain is not going to be taxed at sale as it was in the IRA. Ask your CPA if your can buy it down the road from the IRA, that is the only part I haven't investigated before.

Can I sell a property to my self directed IRA?

The answer is always no.

IRS regulations don't allow transactions that are considered “self-dealing,” and they don't allow your self-directed IRA to buy property from or sell property to any disqualified person, including yourself, certain family members, and others.Oct 30, 2019

[UTpowder]

Thanks all your advice. Talked to the Credit Union today. Their suggestion was a cash out refinance on our house. Really didn’t want to do it that way but it made sense. House would have been paid off in three years. We will add a couple more years and get a no closing cost refi at 3.5 %.

Now just hope we get the lots. The realtor just called and said she’s had three calls today of people asking about putting in offers. She hasn’t seen any come through yet. So we revised ours up by another 10 grand and stated we need to now by tomorrow at 9:00 pm. Hopefully we can sneak away with it before the other offers come in.

[Hopeless Sinner]

Thanks all your advice. Talked to the Credit Union today. Their suggestion was a cash out refinance on our house. Really didn’t want to do it that way but it made sense. House would have been paid off in three years. We will add a couple more years and get a no closing cost refi at 3.5 %.

Now just hope we get the lots. The realtor just called and said she’s had three calls today of people asking about putting in offers. She hasn’t seen any come through yet. So we revised ours up by another 10 grand and stated we need to now by tomorrow at 9:00 pm. Hopefully we can sneak away with it before the other offers come in.

Good luck w the purchase!