Can a Roth set-up with a self-directed custodian get a real estate finder’s fee?
The context and question: A newly created Roth, set-up with a self-directed custodian for real estate and other alternative investments, enters into a purchase agreement for a residential property with an unrelated party, with a market rate price for the home purchase. The Roth account is named as the purchasing party, and the earnest money is paid from the Roth account. The close date is some months in the future.
If, prior to the close date, another completely unrelated party expresses interest in purchasing the property, and offers the Roth account a finder’s fee in return for assigning this unrelated party the purchase agreement, can the Roth accept that transaction? Without triggering UBIT or other pitfalls?
This would be a one-off or very infrequent transaction for the Roth account, which would mainly be making arms length investments in real estate and other alternative investments. The 5 year & 59.5 requirements would be observed prior to any withdrawals of finder’s fee proceeds or any resulting investment returns.
Many thanks for any guidance.
Permalink Submitted by Alan - IRA critic on Tue, 2023-08-08 22:09
I suggest that this question be posed to the SD IRA custodian, who likely deals with real estate related prohibited transaction rules 24/7. You might also seek clarity on how the earnest money should be handled. I expect that payment of the earnest deposit is not treated as a Roth IRA distribution, and neither would the recovery of that deposit or the receipt of this finder’s fee be treated as a Roth contribution. But I defer to the experts on these questions.