Estate planning in my self-directed IRA

Self-directed IRA investment options go beyond traditional stocks and bonds in real estate, limited liability companies and partnerships; tax liens, mortgages, precious metals, notes, etc.

To establish an IRA real estate investment account, the first step is to create an IRA. A self-directed IRA account allows the account holder to control and make the final decisions as to the type of IRA investments that he considers the most profitable.

Self-directed IRA investors can take advantage of their real estate investments through a non-recourse mortgage loan, also known as an IRA loan. Through an IRA loan, the real estate investor can buy a property with his IRA account without needing the total selling price of his IRA account to do it. The IRS prescribes that any loan related to a self-directed IRA must be "non-recourse" when the loan is not personally guaranteed by the borrower. This means that even in the event of loan default, the lender only has the collateral as a solution to repay the loan, not the IRA account or the borrower. This is valid even if the value of the property of the guarantee does not fully cover the loan amount in default. In short, the IRA and the borrower are exempt from personal liability with this type of loan.

Once the self directed IRA has been created, the investor must identify a lender for the mortgage without recourse. At the time of submitting an application to the lender, the borrower would need to file returns relating to their self-directed IRA, their credit application and their latest credit report. Once the loan is approved, the borrower then locates an appropriate property and buys it via the self-directed IRA.

Invest in self-directed IRA funds

The self-directed IRA account holder can invest the IRA funds in two ways:

a) Ask the IRA custodian to buy the property directly with the assets of the IRA

b) Form a limited liability company and purchase the property through the LLC

Both of the above methods involve typical estate planning challenges. The account holder must know which transactions are prohibited and discuss the tax implications with a competent tax advisor.

Investing in real estate through a non-recourse mortgage is one of the most cost-effective ways to get the most out of a self-directed IRA, allowing the investor to enjoy a comfortable retirement. The main advantage of real estate financing IRA is the possibility of buying a property at a very advantageous price – for example, an investor could buy foreclosed properties – and generate a profit sufficient to repay the loan. The other advantage of the non-recourse mortgage option is its ability to protect the assets of the investor because the property purchased constitutes the loan guarantee. This guarantees the IRA holder of all liability.

The non-recourse option for a real estate IRA allows the self-directed account holder to authorize it, offering complete freedom and total control over the investment, as well as specific benefits such as a tax-deferred income, protection of assets and compound interest.