Renting out my IRA’s condo
I’m stuck. The best way to get my (Roth) IRA’s condo rented out would be to hire the real estate firm of which I own 40%. Following what I expect is good advice, my IRA instead hired some other agent at some other firm to find a tenant. Two months later, the place is still empty, and the best place to find the best listing agent is still my own company. My real estate firm will take the listing for no profit. Must my IRA continue to hire suboptimal real estate agents, and continue to lose money, because the IRS considers it a good idea?
Permalink Submitted by Alan - IRA critic on Fri, 2013-03-01 19:17
Are you using a large self directed IRA custodian? If so, have them explain why they think the 40% ownership creates a prohibited transaction when the code indicates 50%.
Permalink Submitted by Richard Jaffe on Sat, 2013-03-02 02:18
Thanks for writing. I hadn’t known what the code states. Yes, I use a well known IRA custodian; however, for legal issues I follow the advice of an attorney whom I believe to be well qualified. I’ll soon own 50% of the company due to the unfortunate passing of one of my business partners. However, if I understand you correctly, I could safely hire my own (40% owned) company now.
Permalink Submitted by Alan - IRA critic on Sat, 2013-03-02 18:04
Sec 4975 is very complex, and the best resource other than the IRS itself is likely to be a large self directed custodian because the deal with these issues on a daily basis. An attorney would not likely have access to this information unless they specialized in this area. I would ask your custodian why the 40% is a problem, also if the waiver of some of the normal fees your firm charges would also be a problem. In theory you cannot even go into the condo to do minor cleanup because you are a “disqualified person” with respect to your own IRA. Add to this the fact that you will soon be at the 50% level anyway means your firm’s services could only be short term at best. Here is a general article on prohibited transactions: http://www.journalofaccountancy.com/Issues/2000/Apr/TheDosAndDonTsOfIraInvesting.htm