IRA Loan: What is the Best IRA for Lending & Profit Splits?

IRA Investments to Earn Cash Flows

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Using Your IRA for Creative Lending and Profit Splits

Powerpoint slides on a superior retirement planning strategy called Roth IRA on Roids which allows for tax-free distributions, tax-free growth, guaranteed principal and guarateed death benefits.Can you create an IRA loan for profitability? Many people ask what is the best IRA for lending and profit splits. There are many ways to earn cash flows when making IRA investments. There are some transactions that have multiple benefits when you make use of the funds in your IRA. Consider this situation: An IRA retirement account owner has $250,000 in the account. The individual has a friend who is a contractor and needs funds in order to build an apartment complex. The money in the IRA can be lent to the contractor on a determined interest basis. The money is then used for a down payment on the property that is needed. An additional load will be obtained by the contractor to cover the rest of the balance of the project. The loan from the IRA will be repaid in full upon completion of the property. An additional benefit to using the funds in the IRA is that the two people will be able to split the profits when the apartment complex is sold. Now, there may be some questions that will arise regarding whether this is a viable deal. First, is the loan from the IRA secured by the property? Second, is the agreement to split profits part of the deal for the contractor to obtain the IRA loan?

If the IRA loan is secured by the property, then the IRA will be in the safest position possible. If this is the case, and the IRA owner makes a deal to split the profits, there will be a problem with the IRA owner receiving current benefits from the deal that involves the IRA account. On the other hand, if the loan is not secured, then the deal is unrelated to the IRA and to the contractor. This means that the unsecured loan proceeds can be used by the contractor for any purpose. If the loan is secured and there is no agreement to split the profits, any deal thereafter is not subject to prohibited transaction rules.

This IRA loan does not violate any IRA rules and it is not seen as a method to get around any prohibited transactions. A different approach can be taken, however. The loan from the IRA can be secured by another property that is in no way related to the apartment complex. This is a way to avoid a nexus between any property and the IRA account will remain in a secure position. The proceeds from the loan can still be used for any purpose by the contractor.

The deal between the two individuals to split the profits is not related to the IRA. If the owner of the account would like to have part of the sale profits go to the IRA and a portion to them, the account owner would have to be partners with the IRA. The owner would have to partner with the IRA 50-50 if he or she wanted to split the profits between themselves and the account. The alternative to this is to arrange an agreement with the contractor to repay the loan and receive 25% of any proceeds when the complex sells. This would mean that as soon as the loan is repaid, the IRA would own the agreement with the contractor and he or she would receive 25% of the sales profit. In addition, the IRA account owner could make another deal with the contractor to personally receive 25%. If the loan is conducted in this manner, the owner of the account is not dealing with any assets in the IRA. They are simply dealing with the contractor on a separate deal.

No matter how the transaction is structured, the owner of the IRA account will benefit from the deal. It is important to comply with IRA codes and at the same time, meet the objectives of the parties involved. Make sure rules are followed so no IRA penalties are incurred.

Rocco Beatrice, CPA, MST (Master of Science in Taxation), MBA (Master of Business Administration), BSBA (Management/Accounting), CWPP (Certified Wealth Preservation Planner), CMMB (Certified Mortgage Broker), CAPP (Certified Asset Protection Planner), Managing Director, Estate Street Partners, LLC. Mr. Beatrice is an asset protection, award-winning trust, estate planning and tax expert.

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