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Hi and welcome to our site!Prohibited transactions are certain transactions between a retirement plan and a disqualified person. Disqualified persons include the IRA owner’s fiduciary and members of his or her family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant).
A prohibited transaction means any direct or indirect transaction described in IRC 4975(c)(1) between the plan and a disqualified person - http://www.law.cornell.edu/uscode/text/26/4975
(c)Prohibited transaction(1)General ruleFor purposes of this section, the term “prohibited transaction” means any direct or indirect—
(A) sale or exchange, or leasing, of any property between a plan and a disqualified person;
(B) lending of money or other extension of credit between a plan and a disqualified person;
(C) furnishing of goods, services, or facilities between a plan and a disqualified person;
(D) transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan;
(E) act by a disqualified person who is a fiduciary whereby he deals with the income or assets of a plan in his own interests or for his own account; or
(F) receipt of any consideration for his own personal account by any disqualified person who is a fiduciary from any party dealing with the plan in connection with a transaction involving the income or assets of the plan.
When your personal funds are combined with funds from the IRA - that is considered a transfer to, or use by or for the benefit of, a disqualified person - and as such is classified as the prohibited transaction.Thus - we need to avoid pooling your own funds with IRA funds.
See also Internal Revenue Manual - 4.72.11 Prohibited Transactions - http://www.irs.gov/irm/part4/irm_04-072-011.html
I plan not to combine the funds but use the funds to purchase property. Each entity will have its undivided interest.
If you simply partner with your IRA to purchase a new property - not the property you already own - that is possible.Here is the article which describes the scheme - https://www.trustetc.com/real-estate-ira/partneringAs we see - it is possible to partners with other investors and with yourself. However - such partnering might trigger the audit and you should be prepared. Also - you need to disclose the structure to the custodian of your IRA account.
Great!! Does this also mean I can purchase the property with my LLC using this method
Yes - there is no difference if you personally partnering with your IRA or the LLC which you own is a partner.
So Just have to be very careful to keep all funds separate. What if I need more money? Can I give it personally or does it have to come from the IRAs???
What if I need more money? if you need additional money to purchase the real estate - funds may be partnered. At the time the property is purchased - we need clear identify percentage of the ownership for each party.That percentage may not be changed.
I am sorry. I mean after the transaction for other fees or to purchase material etc for the property.
All additional investments must be made according to percentage of the ownership for each party.
Thank You! I greatly appreciate you time and answers. I have been working on this for several weeks.
I suggest to verify the article I referenced above.