Distribution of Real Estate

[Gary]

Say a one participant DB plan has $500,000 in plan assets, where $150,000 is the value of a piece of real estate.

Say the one participant terminates and is to receive his lump sum which is computed to be $500,000.

Of course if the property is sold, deposited into the plan and then distributed, it is straight forward.

However, say he rolls over the $350,000 of stocks, bonds and does nothing w/r/t the property. The rollover thus not being subject to immediate taxation.

It would appear to me that the appraised value of the property would be considered a taxable distribution to the participant and would alos be subject to the 20% withholding rules.

Does that make sense or are there other procedures in this situation? I didn't find anything on the distribution of real estate and it is conceivable that the real estate must be sold and distributed in cash.

Thanks.

[david rigby]

What is the goal? to roll over the real estate?

Can the IRA receive/hold real estate?

[Dougsbpc]

I believe there are special IRA custodians that do accept real estate as part of a roll over. Their fees may be a little higher than most IRA custodians, but it might make sense for your client rather than forcing a sale.

[jevd]

I believe there are special IRA custodians that do accept real estate as part of a roll over. Their fees may be a little higher than most IRA custodians, but it might make sense for your client rather than forcing a sale.

Just Google Real Estate IRA and you will get plenty of info.

Here is some info from the IRAS FAQs on IRAs.

Are there any restrictions on the things an IRA can be invested in?

The law does not permit IRA funds to be invested in collectibles.

If an IRA invests in collectibles, the amount invested is considered distributed in the year invested. The account owner may have to pay a 10% additional tax on early distributions.

Here are some examples of collectibles:

Artwork,

Rugs,

Antiques,

Metals - there are exceptions for certain kinds of bullion,

Gems,

Stamps,

Coins - there are exceptions for certain coins minted by the U.S. Treasury,

Alcoholic beverages, and

Certain other tangible personal property.

Check Publication 590, Individual Retirement Arrangements (IRAs), for more information on collectibles.

Finally, IRA trustees are permitted to impose additional restrictions on investments. For example, because of administrative burdens, many IRA trustees do not permit IRA owners to invest IRA funds in real estate. IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option.

[Gary]

I haven't spoken to the client yet, but I would presume that a rollover without sale would be the desired option.

Thanks.

[david rigby]

http://www.irs.gov/retirement/article/0,,id=111413,00.html

[Gary]

Thanks so much for the comments.