Buying Real Estate with Your IRA

REAL ESTATE IN
YOUR IRA
February 14, 2017
www.AdvantaIRA.com

KEY POINTS TO TAKE AWAY
Real Estate in Your IRA
You choose
the investment
All expenses are paid by
the IRA and all income
is received by the IRA
Any IRA or former
employer plan qualifies

Advanta IRA is a self-directed retirement plan administrator
serving clients nationwide. We provide our clients
exceptional personal service, experience, and knowledge
that is paramount in administrating self-directed IRAs.

With a combined 20+ years in our industry, Advanta IRA is
the nation’s premier self-directed IRA administrator. We
also provide a more flexible fee schedule than most
custodians.
EXPERIENCED
We use multiple banks that are insured by the FDIC to
protect the undirected cash held within your IRA.
SECURE
With clients across the nation, Advanta IRA holds over
$700 million in assets and partners with a network of
trusted CPAs and attorneys.
TRUSTED
Our account manager system guarantees clients
concierge-style personal service. Advanta IRA also offers
cutting-edge educational tools for all types of investors.
PERSONAL
WHO WE ARE
About Advanta IRA

OUR LOCATIONS
About Advanta IRA
We serve clients nationwide with regional offices in Florida and Georgia.
Call us at 800.425.0653 or visit www.AdvantaIRA.com today.

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you learn the ins and outs of
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Powerful knowledge about self-directed retirement plans and alternative
investments is available at your fingertips:

Did you know self-directed accounts only
add up to less than 2% of IRA investments.
HAVEN’T HEARD OF A SELF-DIRECTED IRA?
Maybe it is because the most common IRAs are administered by banks
and investment brokers who offer limited investment products.
However, the IRS regulations allow a much broader range of
investments.
What Is a Self-Directed IRA?
?

A self-directed IRA is a unique investment account that
allows alternative investments to be held as assets that can
potentially build tax-free or tax-deferred wealth at a faster
pace than traditional methods may.

The term self-directed simply means that the
owner of the IRA has control over what
investments the IRA makes.
DEFINITION
Self-directed IRAs can acquire real estate, hold mortgages and notes,
private placements (such as LLCs and trusts), precious metals, invest
in foreign currency and participate in futures trading and other
investment options.
These plans can certainly hold the traditional stocks, bonds, and mutual
funds, but the myriad of alternative investments are what attract owners
of these accounts.
What Is a Self-Directed IRA?

SELF-DIRECTED PLANS
Types of Assets and Accounts
Traditional
IRA
SEP
IRA
Roth
IRA
Education
Savings
Account
SIMPLE
IRA
Individual(k)
Plan
Health
Savings
Account
PLANS

PLANS AT-A-GLANCE
TRADITIONAL IRA
CRITERIA
Anyone with earned income is eligible to contribute to a traditional
IRA; deductibility may be limited based on annual income
BENEFITS
Tax deduction, lowering your current tax bill* + Tax-deferred growth +
Former 401(k) can be rolled directly in with no tax consequence +
Retirement savings
*Deductibility phased out depending on income
Check with your CPA or accountant to help determine which option would be the best fit for you and your business.
1

PLANS AT-A-GLANCE
ROTH IRA
CRITERIA
Anyone with earned income which does not exceed the income limits
is eligible to contribute to a Roth IRA*
BENEFITS
Tax-free earnings and no taxation on withdrawals + No mandatory
withdrawals + Low tax situation this year and expect higher taxes in
the future + Contributions may be made after age 70½
*Can contribute to traditional and then convert to Roth
2

PLANS AT-A-GLANCE
EMPLOYER-BASED ACCOUNTS:
SEP IRA, SIMPLE IRA, 401(K)
WHO THEY ARE FOR
Sole proprietors, independent contractor, self-employed, partner,
corporation, or S corporation
BENEFITS
SEP and SIMPLE IRAs offer tax-deferred growth like traditional IRAs,
but have larger contributions limits; they also offer lower administrative
costs than a 401(k) plan + You must include certain employees in SEP
and SIMPLE + Individual(k) offers largest potential contribution for a
business without employees (no discrimination testing necessary) +
Roth individual(k) option available
3

PLAN CONTRIBUTION LIMITS
FOR YEAR 2017
Traditional / Roth IRA $5,500 ($6,500 if over 50)
SEP IRA Up to $54,000 (25% of compensation)
SIMPLE IRA
$12,500 (additional $3,000 if over 50) +
up to 3% of employer match)
401(k)
$18,000 (+ $6,000 if over 50) of salary deferral
+ 25% employer match up to $54,000 ($60,000)
ESA (education) $2,000 per year, per child
HSA (health) $3,400 individual (+ $1,000 catch-up) / $6,750 family

INVESTMENT OPTIONS
Real
estate
Single-
member
LLC
Notes &
mortgages
Private
placements/
private
stock
Other
investments*
Futures
trading
Foreign
currency
(FOREX)
INVESTMENT
OPTIONS
*Other investments include: Oil and gas rights Ÿ Tax certificates Ÿ Structured
settlements Ÿ Commercial paper Ÿ Convertible notes Ÿ Commodities Ÿ Livestock Ÿ
Timberland Ÿ Rights or warrants Ÿ Accounts receivable factoring Ÿ Equipment
leasing Ÿ and more

TYPES OF ASSETS
Real Estate Assets
• Commercial
• Rehabs/flips
• Timeshares
• Residential
• Condos
• Duplexes

TYPES OF ASSETS
Paper Assets
• Mortgage loans
• Tax liens
• Unsecured notes
• Debenture notes
• Option contracts
• Assignments
• Joint venturing
• Accounts receivable

TYPES OF ASSETS
Other Alternative Assets
• LLCs
• Farm animals
• Partnerships
• Movie projects
• Precious metals
• Equipment leasing
• Forex accounts
• Private stock
• Commodities
• Oil/gas

MOVING MONEY TO A SELF-DIRECTED ACCOUNT
Transfer
Moving funds directly from one IRA
account to another without the client
handling the funds. This is a non-
taxable, non-reportable event.
Transfers with an IRA are unlimited.
How and When
Complete a transfer form with the firm
you will be moving funds to. They
submit it on behalf of your IRA.
Transfers are non-recordable and you
can do them as often and whenever
you like.

Direct Rollover
Moving funds directly from an employer-
sponsored plan (401k, 403b, 457, TSP,
pension, etc.) to an IRA, without the
client handling the funds. This is also
non-taxable.
Direct rollovers with an IRA are unlimited.
How and When
Contact your plan administrator and
let them know that you are rolling
funds to an IRA. Direct rollovers are a
recordable event, but as long as they
come directly from your qualified plan
to your IRA, there are no
consequences and you can do them
as often as you like.

Indirect Rollover
If you personally take possession of the
funds from an IRA or employer plan, you
have 60 calendar days to move those
funds back to an IRA to avoid taxes.
This can only be done once per 12
months.
Indirect rollovers with an IRA are unlimited.
How and When
An indirect rollover occurs when you
take a distribution from your IRA or
qualified plan. One per 12 month
period. This is a recordable event and
should the funds fail to be deposited
to your IRA account within 60 days,
they are forever out of the account.

PROHIBITED TRANSACTIONS
INVESTMENT RESTRICTIONS
Life insurance
Collectibles
(antiques, alcohol, artwork, stamps, and coins*)
*Some coins are allowed if they are valued based on the trading value of the metal
✕
There are three elements to a prohibited transaction (the IRA, the DP, transactions
between IRA and DP). An IRA cannot lend money to a disqualified person or entity under
any circumstance. There are no exceptions to this rule.

DISQUALIFIED PERSONS (DP)
IRA owner and spouse
Lineal ascendants of IRA owner (parents and grandparents)
Lineal descendants of IRA owner (kids and grandkids), as well as
spouses of lineal descendants
Business or entity owned or controlled by one of the above
Others
✕

OTHER CONSIDERATIONS
Dealing with brothers, sisters, other family members for less than fair
market value (i.e. lending money to them at less than what a third
party might charge)
Using a middleman between IRA and disqualified person
(step transaction doctrine)
A’s IRA lends to B; B’s IRA lends to A
Having an IRA lend money on a note and having that note secured by
a collectible (collection/re-possession issue)
✕

TRANSACTIONS WITH DISQUALIFIED PERSONS
IRA owns real estate and
leases it out to your daughter
Your father’s IRA lends money
to you or your son
IRA purchases a piece of real
estate from your son
Your IRA makes the down
payment for a property and
you personally guarantee
the mortgage
Spouse’s IRA owns a piece
of real estate and wants to
sell your IRA a portion of
that property (could have
partnered at the outset?)
Your IRA purchases real
estate and hires your son
(or his company) to perform
the rehab work

USING IRA FUNDS TO INVEST IN REAL ESTATE
§ Don’t take funds out of your 401(k) to invest in real estate
§ If you remove funds from an IRA or employer’s plan, you are
then personally subject to taxes
§ If you then use these funds to invest in real estate, you will
have lost 20-30% of your purchasing power to taxes
§ By transferring or rolling these funds over to a self-directed
IRA, no taxes are due and you have more cash to invest
Example:
- Client has $100K in an IRA
- Doesn’t know about self-directed IRAs
- Removes cash from current custodian to invest and faces
possible 10% early withdrawal penalty and income taxes
- By using self-directed IRA, NO taxes or penalties for early
withdrawal to invest
!

THINGS TO REMEMBER:
FRACTIONALLY OWNED
LLCs AND LLPs
§ Since the LLC is fractionally owned, if there is a capital
call for the LLC, the IRAs would all need to put up the
same percentage of the capital call to maintain ratios
§ If an IRA owner puts up the money for the capital call, this
would be a prohibited transaction
§ The manager of the LLC is responsible for then making
the investments, receiving and depositing income, and
paying expenses out of the LLC account
§ When the IRA owners want cash disbursed back to the
IRA accounts (either periodically or when the LLC is
closed), the funds then return to each IRA or party
according to the percentage of ownership

INVESTMENT STRATEGY:
CHECKBOOK CONTROL
§ A checkbook control IRA is an entity in which the
IRA owns 100% of the LLC membership, and the
IRA owner is named the manager of the LLC
§ Checkbook control allows the manager/IRA owner to
write checks directly to fund investments, pay bills,
sign contracts, etc.
§ If the IRA owner wants to be the manager, they
should consult with an attorney prior to setting up
the LLC

§ The IRA custodians who offer the “one-stop shop” of
an IRA, an LLC, and a checkbook to get started,
charge several thousand dollars for this arrangement
§ There is no secret formula that an IRA custodian has
that makes an LLC allowed or disallowed by the IRS,
and Advanta IRA does permit this investment with a
signed disclaimer
§ If you are interested in reading the IRS cases on
which the checkbook control IRA is based, they are:
- Swanson v. Commissioner 106 TC 76 (1996)
- T. L. Ellis, TC Memo. 2013-245
INVESTMENT STRATEGY:
KNOW YOUR FACTS

1 2 3
PURCHASING REAL ESTATE THROUGH TRUSTS
CASE STUDY
The private trust
document is drafted
• Within private trust, the IRA is listed as
grantor and beneficiary of trust
• Advanta IRA FBO Joe Smith IRA
#8001234
• Joe must name a non-disqualified
person as trustee
• Trust is not public record
CASE STUDY
The trust document is
approved by Joe
• Joe must read and approve trust and
sends approved copy to Advanta IRA
• Joe also has trustee sign trust
document
• Advanta signs trust agreement on
behalf of IRA
CASE STUDY
Joe opens and funds an
Advanta IRA account
• Completes an IRA application
• Transfers/rolls over funds from an
existing IRA or 401(k)
• Account number issued in less than
24 hours

4 5
CASE STUDY
Joe’s trust
operations
• Joe instructs his trustee to purchase particular assets in name
of trust
• Trustee will sign documents, enter into contracts, etc.
• Trustee will then deposit income to trust account and pay any
bills out of trust account
CASE STUDY
Funding
Joe’s trust
• Joe’s trustee must get tax ID number for trust to open
bank account
• Advanta IRA issues check from IRA to fund trust
• Joe’s trustee deposits check to trust bank account
PURCHASING REAL ESTATE THROUGH TRUSTS

TWO MAIN TYPES OF TRUSTS WITH IRAs
PERSONAL PROPERTY (TO HOLD NOTES,
MORTGAGES, AND OTHER ASSETS)
Joe’s trustee opens bank account
and purchases assets
Joe’s trustee must maintain records of
income and expenses
LAND TRUSTS
(TO HOLD REAL ESTATE)
Advanta IRA will act as record-keeper
Joe must approve all closing documents
Joe’s trustee signs closing documents
All rents and expenses flow in and out of IRA

USING FINANCING WITH AN IRA
UDFI TAX CONSIDERATIONS
Total monthly rents $12,000 $1,000/month
Total rent subject to UDFI $6,000*
Tax rate (using top end) 39%
Total taxes paid $2,340
Net income after UDFI $9,660 $6,000 + $3,660
Monthly payment $3,597.36
Total income minus taxes $5,108.64
*This doesn’t include deductions and depreciations that would limit impact of UDFI.

LET ADVANTA IRA HELP YOU TODAY
Getting Started
OPEN ACCOUNT
Opening an account with
Advanta IRA only takes
a few minutes. We pair you
with your own client services
representative who guides you
every step of the way.
DONE STEP 1
FUND ACCOUNT
Add funds by making a cash
contribution or by moving or
transferring funds from an
existing IRA or 401(k) plan.
DONE STEP 2
START INVESTING
Choose from a wide variety of
alternative investments
including real estate, notes and
mortgages, single-member
LLCs, private placements and
private stock, precious metals,
and other assets.
DONE STEP 3

Schedule a consultation and speak one-on-one with a
self-directed investment expert today.
Our consultations are always free.

Buying Real Estate with Your IRA

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