FAQ

Frequently Asked Questions

(Click on the question below to reveal the answer)


[EXPAND What is a Self-Directed IRA and how is it any different from a regular IRA?]A Self-Directed IRA is no different than any other IRA. Having a Self-Directed IRA simply means you are allowed to direct the investments of the IRA. Many custodians claim they allow you to self-direct your IRA investments, but then turn around and restrict what you can invest in. A truly Self-Directed IRA allows you to make the decisions without restriction.

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[EXPAND Do taxes and penalties apply when I take money out to buy real estate?]
No. You DO NOT take money out to purchase real estate or anything else you want to buy. It is just a purchase of your IRA or your Self Directed IRA LLC. There are no taxes or penalties. Instead of buying 1000 shares of Microsoft or any other typical stock, your IRA is just making a different type of investment. The method of doing so is different but the tax ramifications are the same.


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[EXPAND What is the difference between a Self Directed IRA and a Self Directed IRA LLC?]They are both self-directed accounts. The Self Directed IRA LLC is truly self-directed and you administer the account. You don’t have to ask for permission to make purchases. You manage the checkbook and write checks on behalf of the IRA.

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[EXPAND What are the advantages to using a Self Directed IRA LLC when investing my IRA in real estate?]You can only receive checkbook control with the Self Directed IRA LLC. With a self-directed custodian, you get more control than you get with a traditional custodian, but you still have to get permission from the custodian for every little thing you do. This is problematic, unnecessary and annoying. Further, with a time sensitive investment it puts you at a huge disadvantage – and what real estate purchases aren’t time sensitive. If you don’t move quickly, you may miss out on a great opportunity. Think of tax liens and tax deeds sold on the courthouse steps; you need to have checkbook control since payments are due after the auction is completed. With the Self Directed IRA LLC you have the checkbook, authority to write checks so you can make an investment without delay. This ensures that your IRA is able to make the best investments at the best prices. Also with the Self Directed IRA LLC your IRA will be subject to fewer and lower fees from the custodian than is typical with Self-Directed IRAs that do not hold an LLC. Thus, there is more money for your retirement, which is the whole goal of an IRA. You obtain the ability to manage the property, collect the rent and pay the bills. Unlike just having a Self-Directed IRA which put restrictions on what you can do, the Self Directed IRA LLC structure allows you to advertise for renters, collect and deposit the rent checks, pay the real estate bills, etc. This can save your IRA a lot of money and helps provide a more comfortable and prosperous retirement for you.

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[EXPAND What are the downsides of investing with a Self Directed IRA?]The only downside is that some people don’t want to be in charge of their own retirement investments. They are happy having someone else make all the decisions. A Self-Directed IRA is not right for them. For the rest of us who want to be involved in our retirement investments and make decisions that will affect our retirement, there are no downsides. Just be aware of the prohibited transactions / restrictions (no self-dealing). We firmly believe that you are the best steward for your money. Nobody cares as much about your retirement as you do.

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[EXPAND Is Asset Exchange Strategies, LLC a Self Directed IRA Custodian?]No, but everyone with a self directed IRA needs an administrator. Depending on your needs, we have a number of custodians that we can refer you to.

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[EXPAND What are your Self Directed IRA Custodial Fees?]
$190 – $200 a year… Whether you have 1 million or a billion in your IRA.

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[EXPAND What types of retirement accounts can be moved into Self-Directed accounts?]
Traditional IRAs, SEP IRAs, Roth IRAs, 401(k)s, 403(b)s, Coverdell Education Savings (ESA) a.k.a. Educational IRAs, Qualified Annuities, Profit Sharing Plans, Money Purchase Plans, Government Eligible Deferred Compensation Plans, Keoghs

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[EXPAND What can I invest in if I have a IRA LLC?]
Your IRA-LLC can make any investment a regular LLC can as long as you stay away from insurance contracts and collectibles. Also you may not have any “self dealings” without a DOL exemption.

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[EXPAND Can I invest my IRA in Real Estate?]
Absolutely!! Currently less than 3% of retirement accounts are invested in non-traditional investments (anything other than Dow & Nasdaq stocks, bonds, CDs, etc), and less than 2% are invested in Real Estate, that is changing. More and more individuals are becoming more and more frustrated with the options offered by their current custodians. Individuals are exploring investments that they can see and touch and that have some tangible value such as Real Estate. They have seen the outstanding returns that investors have historically received in Real Estate and want to move all or part of their retirement money into various Real Estate investments. Within the broad category of Real Estate there are many options for investment: Residential rentals, commercial properties, condominiums, manufactured homes, raw land, real estate in foreign countries, trust deeds / mortgages, and mortgage pools.

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[EXPAND What does the IRS think of investing your IRA in Real Estate?]
The IRS makes the following statement on their website “…..because of administrative burdens, many IRA trustees do not allow IRA owners to invest IRA funds in Real Estate. IRA law does not prohibit investing in Real Estate but trustees are not required to offer Real Estate as an option.”

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[EXPAND Can my IRA purchase Real Estate I already own?]
No. This would be considered a prohibited transaction (see IRC 4975). You many not purchase property which is currently owned by you or any other disqualified person (see below). You would need to find another piece of real estate that you don’t already own to purchase.

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[EXPAND Why does my current broker say I can’t buy Real Estate in my IRA?]
Likely because your current broker won’t let you invest in Real Estate through their custodian. Just because that isn’t something they offer doesn’t mean that you can’t do it; It just means that you can’t do it through them. It is a limitation that your broker is placing on your IRA, NOT one that the IRS is placing on your IRA. Or your current broker may just be ignorant. Either way, you can invest in Real Estate

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[EXPAND What is the easiest way to buy Real Estate using my IRA?]
The Self Directed IRA LLC is the way to get checkbook control over your IRA. A Self-Directed IRA account isn’t enough. You will still need to get permission and have someone else sign off on all investments you want to make. If you are ready to be in control of your IRA, you need the Self Directed IRA LLC.

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[EXPAND If I buy an income producing rental property, what happens to the rental income?]
The income goes back into the Self Directed IRA LLC, and you retain the tax deferred or tax free status of the investment.

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[EXPAND I don’t have enough money in my IRA to purchase a piece of property outright. Can my Self Directed IRA LLC get a loan and use my IRA money as the down payment?]
Yes you can use your IRA money as the down payment and then have your Self Directed IRA LLC get a loan for the balance. However, you will not be able to personally guarantee the loan. It must be a non-recourse type of loan, which means that if your IRA fails to make payments, the only recourse the lender has is against the property itself. Further, there will be tax ramifications to doing so; UDFI (unrelated debt financed income) tax applies when a loan is obtained so you would want to confer with your tax professional about what forms would be necessary

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[EXPAND Can I be the Property Manager of the Real Estate?]
That depends. With just a self-directed IRA the answer is no. But with the Self Directed IRA LLC you have the ability to manage the property, collect the rent and pay the bills. Unlike just having a self-directed IRA which put restrictions on what you can do, the Self Directed IRA LLC structure allows you to advertise for renters, collect and deposit the rent checks, pay the real estate bills, etc. This saves your IRA a lot of money and helps provide a more comfortable and prosperous retirement for you.

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[EXPAND Can my Self Directed IRA LLC get a mortgage on a piece of property?]
Yes. The mortgage would need to be a non-recourse type of loan, meaning that if your IRA fails to make the payments, the only recourse the lending institution has is the property itself. Also, be aware that if your IRA obtains a loan, unrelated debt financing income tax will apply.

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[EXPAND Does it still make sense to leverage real estate?]
Absolutely. Because of your increased buying power when you use leverage, the profits you make from the ability to use leverage can greatly outweigh the tax associated.

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[EXPAND Can I invest outside of my state or outside the country?]
Yes! Your IRA can invest outside of the U.S. There are many great investment opportunities in other countries.

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[EXPAND May I use my IRA funds to make improvements or renovations?]
Yes. In fact, you must use IRA funds to make the improvements and pay all expenses associated with the property. All expenses of the property are paid with IRA funds, and all profits made on the property are returned to the IRA. This makes sense because it is an investment of the IRA

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[EXPAND Can I buy vacation property?]
Yes. Doing so would NOT constitute a prohibited transaction. However, you cannot vacation there.

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[EXPAND Can I buy my dream retirement home with my IRA and then live in it when I reach the age of retirement?]
Yes. Your IRA would be the original owner. You would use your IRA money to make the purchase and maintain the property. Any rents generated would be returned to the IRA. However, upon reaching retirement age, the property could be distributed out to you. Of course, you would have to pay taxes on the distribution.

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[EXPAND Can my Self Directed IRA LLC make loans to other individuals who want to buy real estate? ]
Absolutely. This is done frequently and it is a great investment for your IRA because the loan can be secured by the property.

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[EXPAND Can I make a loan to my brother so that he can use the money as a down payment on a home?]
Yes. According to IRC 4975, siblings are not included in the definition of disqualified persons. Thus, a loan to your brother would not be a prohibited transaction. Although some suggest that it was an error on the part of the IRS to omit siblings from the definition, they, nonetheless, were omitted and to the best of our knowledge, there has never been an IRS ruling to the contrary.

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[EXPAND Can my Self Directed IRA LLC make loans to a friend?]
Absolutely. Friends are not disqualified persons under the Code, and therefore, your IRA can make a loan to them for any purpose whatsoever (boat, airplane, hot tub, home improvements, etc.). Of course, you want to make sure that there are proper formalities and reasonable terms to the loan.

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[EXPAND Can my Self Directed IRA LLC make loans to a real estate developer?]
Yes. Your IRA can loan money to a real estate developer to finance the purchase of property or the development of property. Developers often look for private financing so it is a great way to get your IRA involved in real estate development. And because developers often pay an above market interest rate, the loan can be a great investment for your IRA.

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[EXPAND Can my Self Directed IRA LLC make loans to businesses or companies?]
Sure. Your IRA can make a loan to any type of business. However, be aware that there are some restrictions on loan money to any business that you or any other disqualified person has an ownership interest in.

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[EXPAND Can I buy a business with my Self Directed IRA LLC? ]
Yes, you can buy a business with your IRA money via the Self Directed IRA LLC. Please contact us for details…

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[EXPAND Can I invest in an existing business?]
Yes. This can be done as the purchase of stock as a loan to the business.

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[EXPAND Can I transfer funds from a 401k, IRA, Sep IRA, Roth IRA, or 403b and direct investments myself? ]
Yes. You can self direct all of these types of accounts. They can all be invested into the Self Directed IRA LLC for truly self-directed investing.

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[EXPAND Why haven’t I heard of this before? Who would tell you? Your stock broker?]
They will only let you invest your IRA in investments their firm offers. At a bank you will be limited to CDs. At a brokerage firm you will be limited to stocks and bonds. As a consequence (and unfortunately for many investors) it has been a well kept secret that they have other options for their IRAs. The traditional investment community has had control of over 97% percent of retirement accounts, and they have been making a great living off your accounts. Why would they want to let you know about alternatives that they would not be able to charge for?
As investors have become more disillusioned and frustrated with traditional investment choices, they have begun looking for alternatives. After the steep stock market decline, corporate scandals and corruption (e.g. Enron, ImClone, Worldcom), many investors are seeing their retirement accounts cut in half. They are finally ready to take control of their own investments. They often want more tangible investments such as real estate, deeds of trust, gas and oil.
When they ask their current Advisors and Brokers, they are typically told that such investments are illegal, too complicated or that it can’t be done. But those are ignorant and self-serving responses. Although the Advisor’s custodians and Brokers may not allow it, it can be done. It is just likely you can’t do it through your current custodian, so they will financially suffer if you move your money to someone who can. Rest assured, they aren’t going to tell you about it.

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[EXPAND Why is there so little information available on Self-Directed IRA options?]
The traditional investment community has control and is making money off over 97% of the retirement accounts. Letting you know that you have other options to the stock and bond market risks losing the commissions and fees they charge on your retirement accounts.

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[EXPAND How do I know that this is legal?]
This is a question that is frequently asked by investors who have never heard that they could invest in anything other than stocks and bonds in their retirement accounts. They have no idea that they can invest in Real Estate and many other investments. However, Real Estate has been an allowed investment since the day IRAs were created almost thirty years ago.
Find out for yourself by going to the Internal Revenue Service’s website (www.IRS.gov). Request Publication 590. On pages 40-41 you will see what investments are not allowed (collectibles, life insurance, s-corporation stock, etc.). Real estate is NOT mentioned as a disallowed investment just like stocks, bonds, mutual funds are not mentioned as a disallowed investment.

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[EXPAND My IRA is small. Can I personally co-invest with my IRA?]
It is NOT a prohibited transaction for you to co-invest with your IRA. However, there are certain formalities that need to be adhered to, and there are some situations where it isn’t advised.

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[EXPAND Can my IRA co-invest with friends?]
Yes. IRAs may purchase an undivided (and proportionate) interest in real estate.

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[EXPAND Are the gains that my Self Directed IRA LLC makes taxable?]
Not in most cases. If an IRA buys a piece of property and then sells it at a profit, the gains stay within the IRA. If you have a traditional IRA, the gains are tax-deferred. If you have a Roth IRA, the gains are tax free. Note, you alter that result if you use leverage.

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[EXPAND Are there ]any special taxes that apply when I use debt financing to purchase real estate?
Unrelated business taxable income (UBIT) would apply. Due to non-profit organizations encroachment on the business opportunities normally engaged in by taxable businesses, the IRS code was altered to include the provision in 1950.
Essentially, if a tax exempt entity (e.g., non-profit) engages in a business that is unrelated to its primary purpose, any income derived from such business will be subject to UBIT. IRAs are also subject to UBIT if they conduct unrelated businesses that produce profits.
For example, if an IRA forms an LLC to buy and operate a dry cleaner or gas station, businesses obviously unrelated to the primary purpose of an IRA, the net income will be taxed as UBIT (at the trust tax rate because an IRA is considered a trust under the tax code in this purpose). The change in the code was intended to level the playing field between tax exempt organizations and for-profit organizations conducting the same businesses.

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[EXPAND What are IRA Prohibited Transactions?]
Understanding what constitutes a prohibited transaction is very important when it comes to making investments within your IRA. The IRS defines a prohibited transaction as follows:
“Generally a prohibited transaction is any improper use of your IRA account or annuity by you, your beneficiary or any disqualified person. Disqualified persons include your fiduciary and members of your family (spouse, ancestor, linear descendant, and any spouse of linear descendant).” IRS Publication 590, IRC 4975 is the section that lays out the rules on prohibited transactions. Prohibited transactions generally involve one of the following:
(1) doing business with a disqualified person
(2) benefiting someone other than the IRA
(3) loaning money to a disqualified person
(4) investing in a prohibited investment.
In plain English, prohibited transactions are those transactions that violate the basic intent of the IRA. Your IRA must benefit rather than benefiting you personally. In other words, there can be no “self dealing” transactions. However, there are many ways in which you can invest your IRA and not be in violation of the prohibited transaction law. When your IRA benefits, you benefit because it is for your retirement.

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[EXPAND What are IRA Prohibited Investments?]
The Internal Revenue Code does not specifically authorize investments within an IRA; rather, the code outlines what types of investments are not allowed. The prohibited investments include: artwork, rugs, antiques, metals, gems, stamps, coins, beverages, stock in a s-corporation, and certain other tangible personal property.

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[EXPAND What are some types and examples of prohibited transactions and / or self-dealing transactions?]

  • You can’t purchase a home from your daughter or purchase a property from yourself that you already own. You can only invest in new properties and purchase properties from an individual who is not considered a disqualified person. A disqualified person is a person who is a direct descendant.
  • You purchase a vacation home, hunting property or a golf course as an investment for your IRA but you yourself cannot personally use it. All the purchases made by the IRA LLC MUST be for investment purposes only.
  • You cannot perform maintenance on a property that your IRA owns and pay yourself for work that you do on the property such as repairing a leaking faucet.

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[EXPAND Who is a disqualified person?]
The IRA holder and his or her spouse, the IRA holders ancestors, lineal descendants and their spouses; investment advisors and managers, any corporation, partnership, trust or estate in which the IRA holder has a 50% or greater interest; and anyone providing services to the IRA such as a trustee or custodian.

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[EXPAND How am I a disqualified person? It doesn’t seem to make sense?]
There is a clear distinction between your IRA and you individually. You and your IRA are not the same. Your IRA is a separate trust for your benefit when you retire.

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[EXPAND What about S-Corporations, can I form an IRA S-Corp?]
S-Corporations do not allow IRAs as investors; they only allow individuals as investors. Therefore, it isn’t so much that IRAs are prohibited from investing in S-Corporations rather that S-Corporations don’t permit having an IRA as a shareholder. It is likely that the investment of the IRA would revoke the sub-s status of the corporation.

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[EXPAND Can I buy Stocks, CDs, Bonds, Options, in my CHECKBOOK IRA LLC?]
Yes. There is no sense in letting your retirement funds sit on the sidelines while you are looking for real estate investments. You can invest in publicly traded stocks, CDs, mutual funds, annuities, bonds, stock options, futures, etc. If you are an active day trader, with checkbook control you will be able to trade your IRA in a manner that your current broker does not allow you to trade using the Self Directed IRA LLC. For example, you probably have asked your broker if you can buy or sell Options (Calls and Puts). Or maybe you would like to write covered calls or do spreads and have been told no. The Self Directed IRA LLC allows you to trade your way.

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[EXPAND I have a 401K with an old employer. Can I move it into the Self Directed IRA LLC?]
Yes. You can move these 401K funds into the Self Directed IRA LLC. We do it all the time. We can facilitate the rollover so that you can unlock those funds for your next real estate purchase.

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[EXPAND I have a 401K with my current employer. Can I move it into the Self Directed IRA LLC? ]
Depends on the 401K plan document for your current employer. It will specify what you can do, but most of the time you cannot move money from a 401K plan if you are currently working for the company. However, in some cases you might be able to unlock a portion of your 401K funds and self direct those funds for real estate investing purposes. It is worth investigating. Contact your company retirement plan representative to obtain the plan document. You will want to check the plan document and see if you can do an “in-service transfer”. If you can, then read the details. You might be able to transfer all or a part of your IRA to a Self Directed IRA for investing.

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[EXPAND I have several IRAs and old 401Ks. Can I combine them?]
Yes. They can all be combined and then invested into your Self Directed IRA LLC so that your buying power is maximized. The only restriction is on 401(k) accounts; you generally must no longer work for the employer. You can usually combine multiple retirement accounts into one account. Or in the event that they can’t be combined, such as the case of a traditional IRA and a Roth IRA, they can still be invested into the same Self Directed IRA LLC so that you still have maximum buying power.

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[EXPAND Is the transfer a taxable event?]
No… and neither is a direct rollover.

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[EXPAND Do you offer checkbook control to investors?]
Yes

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[EXPAND Do you allow investments in LLCs and LPs?]
Yes

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[EXPAND Can I invest in an LLC I manage?]
Yes

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[EXPAND If I don’t want to be the manager of my IRA’s LLC, can I authorize access to another person (my accountant, say?)]
Yes

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[EXPAND Can I partner with my IRA, and if so, what are your rules?]
Yes. We will need to create a separate LLC for the partnership.

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[EXPAND Can my IRA partner with another unrelated individual on investment properties?]
Absolutely.

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[EXPAND Can my IRA pay for pre-construction reservations I intend to assign or simultaneously close on?]
Yes

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[EXPAND Can my IRA invest in secured and unsecured notes?]
Yes

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[EXPAND Do you have the flexibility to consider unique transactions?]
Yes

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[EXPAND Can I manage rental properties owned by my IRA, and if so, is there a limit to how many?]
Yes, and there is no limit.

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[EXPAND Must I hire a bookkeeper for rental properties owned by my IRA?]
No

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[EXPAND Are you bonded for theft and fraud?]
The asset is held by the LLC not by us.

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[EXPAND Are funds that are not invested but remain in my IRA insured?]
Typically yes. Since the client has checkbook control, the funds are in an FDIC insured bank account.

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[EXPAND Do you have any litigation ongoing or pending?]
No

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[EXPAND Do you have an audited annual report available?]
No

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[EXPAND Do you permit debt-financed properties?]
Yes

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[EXPAND Do you permit foreign real estate?]
Yes

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[EXPAND What is your review process of limited partnerships?]
We draft the LPs with tax attorneys. Typically the custodians have no say in the content and cannot make a judgment upon any instrument such as this.

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[EXPAND What are your most common problems in real estate transactions?]
We draft the LPs with tax attorneys. Typically the custodians have no say in the content and cannot make a judgment upon any instrument such as this.

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[EXPAND Do you offer any advice on investment vehicles or individual investments?]
Yes. We can, but custodians cannot offer advice!!!

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[EXPAND Are you independent of products recommended?]
Yes.

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[EXPAND Do you have a complaint procedure?]
Yes.

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[EXPAND Do you have any testimonials?]
Yes.

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[EXPAND What sets your company apart from the rest?]
We offer support beyond the custodian. You’ll find the answers from the custodians you have contacted will be considerably different than those we provided for you. The custodian is a product to us. We’ll find the best IRA strategy to meet your needs. We can also structure the deal so you and the IRA holders are shielded from the IRS. We offer the four following benefits:

  • Checkbook control
  • You make your investment decisions without custodial intervention
  • Litigation protection of the IRA (not provided by custodians)
  • Lowest possible custodial costs

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[EXPAND Would you be willing to send a representative to conduct a Real Estate IRA workshop for signing up members of a group to your company?]
Yes

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