Real-Estate investment

[FJR]

Gary, do you have any experience with SEP's owning investment real-estate in under their account? I assume SEP's are still subject to 406(B).

Your thoughts would be appreciated

[Gary Lesser]

You may need an IRA trustee or custodian that will accept real estate (or an option to buy) as an asset. Fees will be higher and an annual valuation will be required. If property mortgaged, then IRA might have sme UBTI. You raised no indication of a prohibited transaction, but that too is a possibility. If nearing RMD period, be sure there are enough liquid assets to make RMDs. Hope this helps. Do you have any specific questions?

[FJR]

They have found a Custodian that will do it. I guess my question is more about the PT issues. Are they the same under a DC plan? The individual wants part of money from SEP to pay for property and the rest to be personally mortgage under his name. Does that run into UBTI. If the property is for investment only and not the use of the individual, then I don't see a conflict there. What if the individual wants to buy the property later down the road and use it for personal use. Does this become a taxable transaction or can the money go back into SEP?

[mbozek]

You need to hire tax counsel to review the PT rules of IRC 4975 which prohibit a fid (the IRA owner) from using IRA assets for the benefit of the fids personal account which could happen if the owner needs the IRA investment to complete the purchase. Also the IRA cannot engage in a sale, purchase or lease of plan assets with a fid even for FVM. Violation of the pt rules results in the the entire IRA being taxed as a distribution, not just the amount invested in the PT.