More on Self Directed IRA accounts

My new friend in Cuenca, Sue Woods – she and hubby have been in Cuenca 6 weeks now! called me to give me the scoop on self directed IRAs. The Woods have actually set one up with the idea to purchase rental property in Ecuador. I wish them luck! and I also hope that they blog about it here….

The basics are that a certain company can set up your “trust” for the IRA and then you choose which bank you want to “hold” the funds for the “trust”. The company setting up the trust has relations with banks, and can give you referrals, but you don’t have to keep the money there, you can place the funds anywhere.  The funds are not in your name, they are in the trust name, BUT you are given a “checkbook” with which to spend the money. I am told that it’s best to set up the trust and move the funds over to the trust before signing any papers to purchase property.  Property must be purchased and title held in the name of the trust. No state or federal income taxes need to be paid on any of the funds in the IRA unless you’ve kept them in your hot hand personal bank account for over 60 days, but have moved them over timely.

No answer yet about whether purchases with IRA trust money will suffice for Ecuador’s $25K minimum investment for residency requirements (that’s if you don’t have a set income monthly that also qualifies). More on that, later, when I find that answer.

Here’s where things get sticky. If you get to this point with your IRA, and then you purchase property in Ecuador with the IRA funds (which is completely legal to do) the property must be for investment purposes. You can’t rent it to yourself, you can’t rent it to a family member, you can’t take the profits or make improvements to it with your own money – that all has to be done within the IRA.  So, if after a few years of renting the property, if I want to take possession of the property outside the IRA, I have to sell it to myself. Or sell it to someone else. Either way, I pay income taxes on the ENTIRE amount of the sale. I still have a few questions relating to: what if I sell it for less than it’s worth? Do I pay taxes on the amount of the sale? or what I bought it for?

Some of you may know that during the spring, I am an H & R Block tax professional.  In the next week, I will be asking some of my “enrolled agent” friends at HRB about this very thing. Meanwhile, many thanks to Sue and Ed Woods for their information. Anyone else have any info on this subject, fire away!

Here’s a lovely photo of a huge butterfly from hubby’s journey to Coca last September….

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3 responses to “More on Self Directed IRA accounts

  1. Hi it was good to talk to you yesterday. I just wanted to let you know that my husband’s name is Pat, not Ed. And as far as the info about if the LLC sells the property, I think the LLC will only pay capital gains tax on the gain that it might have had from selling the property (less any expenses that it had not depreciated over the years). If the LLC sells the property at a loss, then it will not owe any tax (at least to the US govt). I’m not sure how it works with the Ecuadorian govt. The only time you personally will owe any income tax to the US is when you withdraw funds from the LLC. Sue

    • Thanks, Sue, I appreciate your help. I will be speaking with the people @ Guidant on Tuesday. I’m not sure but I don’t think that there are any capital gains tax nor depreciation deductions for property held within a self directed IRA. I will ask them and verify. Expenses can be deducted from the IRA, but you can’t depreciate the value of the property)for income tax purposes) in the same way that you can when you own rental property, outright owned, not owned in an IRA. I’ve been told that you can take rent as an IRA “disbursement” after age 59 1/2, (income that may be taxable depending on the amount and what other income you have) and if you sell the property and leave the funds inside the IRA, there is no income tax, just like you stated. After I speak with the Guidant person, I’ll write in my blog again. Thanks for the info, much obliged!

  2. Pingback: Morning Update – Friday, June 10, 2011 « South of Zero

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