Can I Sell an Asset to My IRA?
IRS rules regarding IRAs and pension plans contain provisions which prohibit “self-dealing”. Simply stated, you may not personally utilize any assets owned by your IRA nor receive any benefit prior to its distribution.
As part of the exclusive benefit rule, commissions on sales involving your IRA cannot be taken; furthermore, no loans should be extended or employees hired who are disqualified persons.
What is an IRA?
An Individual Retirement Account, commonly referred to as an “IRA,” is a tax-exempt account designed to help save for retirement. There are various kinds of IRAs – traditional IRAs, Roth IRAs and SEP IRAs – created by the government under ERISA legislation in 1974 as an alternative way for individuals to save for their own futures beyond employer sponsored plans.
The IRS imposes stringent rules governing how property owned by an IRA should be used, known as prohibited transactions, with an aim of discouraging self-directed IRA owners from making investments which would be taxable to them or their family members in any way.
Example: if you purchase real estate through an IRA and its rental property is managed by them, any personal use such as vacationing with family is strictly forbidden. Furthermore, performing any work yourself such as rehabbing a house or fixing leaky faucets would constitute prohibited transactions between your IRA and disqualified individuals; to find guidance regarding your specific circumstances please seek professional guidance; dealing with unrelated third parties when buying, selling or transferring assets will eliminate 99.9% of potential prohibited transactions.
How can I sell an asset to my IRA?
An individual retirement account (IRA) is a tax-advantaged savings vehicle designed to give investors many tax benefits. Popular types of IRAs include traditional, Roth, SIMPLE and SEP IRAs – and individuals earning income may open them with banks, investment companies or other approved custodians.
Some IRA custodians allow investors to invest in alternative assets such as real estate, private placement securities, promissory notes and crypto assets. Investment in these alternative assets carries unique risks such as lack of legal protection and fraud risks; investors should use extreme caution when investing in unregulated vehicles and always check information contained within self-directed IRA account statements regarding prices and asset values before proceeding with their purchases.
When investing property through an IRA, several rules must be observed to avoid violating prohibited transactions rules. An IRA may purchase and own both residential and commercial real estate; they can even lease it to tenants provided it does not serve any personal benefit for its owner – using any property for personal gain is considered a prohibited transaction and could disqualify the IRA altogether – meaning Mr. B may face a 10% penalty for leasing his warehouse to his “S” corporation.
How do I sell an asset to my IRA?
Individual Retirement Accounts (IRAs) provide up-front tax savings and ongoing tax advantages before and during retirement. Available to anyone with earned income – even self-employed people – they’re accessible to anyone, including self-employed people. An IRA can store almost any asset such as stocks, bonds, mutual funds and real estate; but any investments held outside an IRA in taxable brokerage or mutual fund accounts cannot be sold and transferred into your IRA even if that custodian offers self-directed IRA options (SDIRA).
Transferring assets directly between IRA trustees is known as a transfer, not rollover. This may take place between accounts held with one custodian or multiple financial institutions and must be made payable directly to the receiving IRA rather than you in order to avoid prohibited transaction penalties and allow access to transferred assets without restriction or penalties being levied against you.
When selling property that forms part of your IRA, work with a real estate agent familiar with self-directed IRAs to draft the purchase contract in its name – such as “IRAR Trust Co. FBO John Doe #12345 % undivided interest”. Furthermore, change the deed so your name replaces that of previous owner(s).