Can I retire in a house bought by my IRA LLC?

By Jordan Sheppherd

Retirement House

I received the following question from one of our clients:

Dear Jordan,

I was wondering how it would work if I chose to buy a piece of property that I later wanted to move into and own?  I’m looking at a piece of land here in North Carolina that I would like to hold on to and use for retirement (move into that is).  Is that possible?  Someone told me I couldn’t do it because it’s not cash, but that didn’t make much sense to me.  And how would I get it out of the CheckBook IRA LLC?  I wouldn’t just sell it to myself would I?

Daniel in North Carolina

My response:

Hello Daniel,

You’ve hit on something that has caused a lot of confusion amongst those with an IRA LLC.  Most people are under the impression that a distribution from their IRA must be in the form of cash.  That belief has become somewhat widespread because some Custodians won’t make a distribution unless it’s in cash.  Before we get into that, let me give a general answer to your question.  You can certainly buy this dream property with the CheckBook IRA LLC, and yes you can also move into it later on and retire there if you wish, but…

In order for it to be a legal transaction, you’ll first need to make sure that the CheckBook IRA LLC does not buy the property from a prohibited party, and that no prohibited parties are involved in, or benefit from, the transaction (you can read more about prohibited transactions here.)  Secondly, you’ll need to keep in mind that even though this is your dream house, and that one day you will live in it, you will not be able to have any use of the property so long as the LLC or the IRA owns it.  You can rent or lease the property to non-prohibited parties in the meantime of course, but you won’t be able to move in, live there or have any use of the property.  Once you decide you want to have use of the property, you would need to distribute the property to yourself.  Most people don’t know you can do that, but our Custodian will allow it.  The property would have to be distributed back to the IRA first, and then to you.  An appraisal on the property would need to be done at the time of distribution to set the distribution amount, but once everything is complete and the distribution has been made and the property titled into your name, you will be able to move in, build, or do whatever you want with the property.

Jordan

Invest intelligently.  Enjoy the rewards.

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