Can An IRA Own As An Investment A LLC Interest Owning Rental Real Estate?
The following question asked to Harry Gross is a standard question asked by many IRA participants:
Dear Harry: I am 66 years old and retired. I have significant IRAs and own two-thirds of a Limited Liability Company (LLC) that’s invested in rental real estate and doing nicely. I own my home with no mortgage. I want to buy out my brother’s one-third of the LLC to help him financially. I do not want to go to the bank for a loan at my age. I intend to buy my brother’s share with money from my IRAs. The IRS told me on the phone that I could do it. Is this OK, or do you have other suggestions?
What Harry Says: This proposal is perfectly OK as an IRA investment. However, investing IRA funds in real estate directly or through an LLC becomes rather tricky with the custodian of the IRA. Unlike stocks and bonds, rental real estate involves management that may be beyond what the custodian is equipped to do. Remember, IRAs may not owe money on loans or mortgages. The amount of the loan may be considered as a withdrawal. I agree with your age-related concern about the mortgage, but your assets seem larger enough to afford you protection. My vote is to borrow enough to pay your brother with no involvement of the IRAs.
Reference: Harry Gross, Philadelphia Daily News, Page 13, (February 13, 2015)
Filed Under: Tax & Pension Law; IRA real estate investments
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