Is this true? I thought you could only do this if you start the business with the IRA as a partner. But if your business already exists, you cannot use funds from your IRA for a flip. Is that not right?
U.S. Department of Labor ruling 2000-10 allows you to partner with your IRA but there are special circumstances under which it is allowed. Otherwise it's self-dealing and a prohibited transaction. Here are the basics for partnering with your IRA.
Your IRA can partner with another person, entity or IRA. In
partnering, as you may know, the IRA would own only a percentage of the property
and the remaining portion would be owned by someone else. You may partner your
IRA with personal funds and/or disqualified persons, but some restrictions
apply.
One
major restriction is when your IRA partners with disqualified persons, the
ownership percentage must be kept constant throughout the life of the
investment, and all expenses and income must be split according to that ratio.
Each bill must be paid according to the ownership ratio.
For
instance, if you and your IRA each pay half of the cost for a real estate
investment, any renovation or fix-up costs must also be split in half.
Conversely, any income from the property must also be split in half.
Although
these restrictions require an active investor to properly manage the
investment, a good self-directed IRA provider can smooth the edges and make
your investment and management process easier. Partnering with your IRA has
worked for some of our clients and can be a valuable tool to increase
retirement funds and acquire lucrative real estate assets.
And,
contrary to popular belief, you don’t need to start an LLC when partnering with
your IRA to purchase real estate. You can also partner with non-disqualified
persons to your IRA such as your siblings or cousins to set up a more flexible
investment plan.
