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An Obvious IRA No-No | By: Jeffery Watson

Recently, I attended a large IRA investing educational event. In one of the smaller evening breakout sessions, a new investor asked a question I have heard many other investors ask. It went something like this: “Can I use my IRA to buy a rental property owned by my wife’s LLC?”

I’ve heard that questions or some variation of it over 50 times over the last 10 years. The answer to that question is a very simple, categorical NO! Neither your IRA nor the IRAs of your spouse, children or parents can be used to invest in or buy, in whole or in part, any asset that you, your family or your business associates already own. Your IRA must deal with non-disqualified, third-party individuals.

The second most frequently asked no-no question I hear is, “Can my IRA loan money to so-and- so, and then so-and- so’s IRA loan money back to me or my company?” I’ve heard that question asked in many different variations. I must confess that even I have been tempted to sit down and map out some sort of multi-stage process wherein something like that could occur.

Every time, I come to the same conclusion. When you break it down and examine all the pieces, it’s a prohibited transaction. Even if you have multiple stages and steps involving different people and different amounts at different times, if it’s being done for the purpose of getting IRA money from one person so you can get money back to the other person, it’s a prohibited (step) transaction because each loan is contingent upon the other loan occurring at or about the same time.

On the other hand, let’s say Bob’s IRA makes a 90-day loan to Bill’s IRA. A year after Bill repays the loan, Bill’s IRA makes a loan to Bob’s IRA. What’s the difference, you ask? It’s pretty simple. There is no quid pro quo wherein you do for me and I do for you involved in those transactions. Rather, they are separate and distinct stand-alone deals that are not interrelated or codependent.

If you have questions about those kinds of deals and want to learn more, I highly recommend that you take time out of your busy schedule to attend the Self-Directed IRA Training being held on August 19. I will also be at your August 8 General Meeting to answer more questions like these.

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