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Terminating a PS plan that holds a Town House


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This is a one-person profit sharing plan. He hasn't contributed to the plan in quite awhile, and realizes it's time to simplify and terminate the plan. However, he wants to keep the town house. Assuming the property isn't being rented out by a family member and there are no prohibited transaction issues [i'll quiz him more about this to be sure], I think he would need to make sure that there is an up-to-date appraisal, then roll the property over to a self-directed IRA, which, according to what I've read on the internet :unsure: is the only way an IRA can hold real estate. The only other thing I can think of is to replace the town house with cash equal to the appraised value (assuming he has cash available to do that) and have the deed transferred out of the plan's name to his name. Then his rollover would consist of all cash and he can follow the normal IRA investment rules. If neither of those options works, what would be the proper way to handle this? Guidance would be appreciated.

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He can transfer the deed to an IRA custodian who is willing to hold RE. However the IRA will need to have other assets/cash to pay all expenses attributable to the RE including insurance, taxes, repairs. He will also need to have periodic appraisals and after 70 1/2 take RMDs. Of course he cannot live in the home. He could not substitute cash which would be rolled over to the IRA instead of the deed to the house because the IRS requires that only the property received from the plan can be rolled over.He can sell the home after it is rolled over without being taxed on the sale or collect rent from a tenant if he continues to own it.

mjb

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The only other thing I can think of is to replace the town house with cash equal to the appraised value (assuming he has cash available to do that) and have the deed transferred out of the plan's name to his name.

Not an expert on this topic but I THINK you can't do that. That seems like that would be the plan selling an asset in a way that would create a PT.

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If he has the cash (outside of the Plan), or is willling to take out a mortgage, he can probably get a speedy EXPRO prohitibed transaction exemption to allow him to buy the property from the Plan, per a solid independent valuation of course.

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