Jamin' JROD

Luke: I read your responses and not only 100% agree but I think your description of the PT rules as mental gymnastics is spot on! All too often, I end up drawing pictures and labeling each party in a transaction! That said, I feel like this transaction would be okay provided that the Plan Asset rules aren't triggered. I was thinking about it this way: 1) The Doctor/IRA's owner's investment in the REIT owned by the other unrelated doctors doesn't trigger a PT. The other doctors (presumably) aren't disqualified persons. 2) The REIT then invests in a building which rents space to the practice at FMV. 3) As long as the REIT investment doesn't exceed 25%, the Plan Asset rule isn't triggered and the entire transaction isn't a PT. However, if it is triggered, then REIT assets are considered plan assets and the deal with the doctors office in which he owns a small stake (i.e., the 2%) does create PT issues. However, even if the Plan Asset rule is triggered, he may be alright given his small ownership position. I mean, the transaction (e.g., rental agreement) would be between the doctor's office and the REIT. in this situation, the REIT is a disqualified person. However, and obviously depending on the facts, his position in the doctor's group may NOT make it a disqualified person, again....allowing the transaction. Nevertheless, I'd rather not take that position if possible. Does that sound right? What I'm not clear on, and maybe you can help, is whether the 2% stake is factored into our plan asset analysis? I feel like it wouldn't be, since we are determining ownership of the REIT and not the practice, but what do you think? Am I off on this any of this analysis? Jeremy

It's going to depend on whether you are a covered or non-covered individual. "Covered Individuals" are those whose annual net income or net worth exceeds certain levels and who fail to certify that complied with all Federal tax obligations for the 5 years preceding the expatriation date. For these individuals, the account is treated as distributed. The 10% penalty does not apply. You don't actually have to close the account, but you will be taxed on subsequent earnings when the account is finally closed. For everyone else, the account can remain open and tax deferred. Unlike Covered Individuals, you could be subject to the 10% early withdrawal penalty. Obviously, you end up paying taxes once you receive a distribution. Additionally, if you keep the IRA open after surrendering your green card, you will have to navigate the complicated waters of international tax treaties once you finally do take a distribution. In my opinion, unless there is some compelling reason to stay tied to the U.S. tax system (e.g., you are facing a large early distribution penalty), it's probably better to take the distribution, pay any tax, and just simply be done with it all. For reference, See Sections 877 and 877A of the Tax Code (26 U.S.C. 877, 877A).

I was just browsing the Board and came across this post. I actually addressed this recently in two different settings. Once the assets are moved out of the plan and into an IRA, they lose ERISA protection. Instead, we are now dealing with state law