Last week we outlined the difference between using a Self Directed IRA and a Self Directed IRA LLC to start a fix and flip business.

We saw the advantages and disadvantages of each strategy. But what if we wanted to actually do some the work on the property ourselves?

Can we do it? Can we get paid for it? How would we do this?

The good news is that yes we can do it. The bad news is we can’t do it with a Self Directed IRA or Self Directed IRA LLC. This would violate the self-dealing rules and create

a prohibited transaction. However the IRS allows us to set up a corporation (must be a C Corporation) and rollover retirement funds from any qualified retirement plan into a

401k plan created for the corporation. This is called a ROBS (Roll Over as Business Startup) plan.

Once the funds are in the new corporations 401k plan, the plan would use the funds to purchase stock in the corporation. This gets the funds from the 401k plan into the corporate bank account.

Funds in the corporate bank account can be used for any legitimate corporate purposes including:

  • Paying salaries
  • Paying benefits
  • Paying expenses

The structure allows you to provide work on the property and be compensated for doing so. You can hire family members to do the work and you can pay them also.

You can obtain loans on the property and personally guarantee the loan if necessary.

In short the ROBS plan eliminates most of the restrictions imposed by using the Self Directed IRA  or Self Directed IRA LLC to fix and flip property.

The drawback is that you will be subject to corporate income taxes on corporate profits and personal income tax on the salaries you pay. However this can be mitigated by

contributing to your new 401k plan.

For details on a ROBS plan see: IRA and 401k Business Financing

 

 

 

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