IRA Investment

[Booger]

Morning, everybody. Client wants his IRA Account to invest in farm land. This land may or may not be

encumbered with a mortgage. Doing the research, I don't see a reason why the IRA cannot hold real estate

whether or not debt is involved. However, my question is how to structure this so that it is considered

a "rollover" from one qualified account to another.

Any suggestions?

Booger

[Lion EA]

He will need to roll it over to a trustee who specializes in IRAs holding real estate, especially farm land, who can calculate how much to keep liquid to make mortgage payments, pay the bills, etc., from the IRA. He will need to avoid personal use of the farmland, which I think includes working on it himself or directly paying workers, but ask the trustee. The trustee company he chooses will have him sign the appropriate paperwork to roll the current IRA into the new one.

[jainen]

>>I don't see a reason why the IRA cannot hold real estate whether or not debt is involved<<

To roll it over, the taxpayer would have to find a custodian willing to hold and manage real estate. The high fees are generally considered unacceptable by most investors.

I don't know what authorities you researched, but one of the most basic rules is that pledging IRA assets as security for a loan (like a mortgage) is a prohibited transaction that is treated as a complete distribution of the entire account. Similarly, the taxpayer can not personally guarantee the loan for the benefit of the IRA because that would be providing a service to the IRA. The same rule prohibits the taxpayer from involvement in any aspect of the management or operation of the farm land.

[Booger]

Thanks for your responses. The client would not be personally involved with the farm operation.

Jainen, thanks for the pledging of IRA assets reminder.

[jainen]

>>The client would not be personally involved with the farm operation.<<

By the way, why does the taxpayer want to do this? Has he heard about the fantastic profits being picked up by absentee-owner farms that can't use credit?

[JohnH]

He should speak to the two farmers fantasizing about winning the lottery.

Farmer #1 asked farmer #2 what he would do if he won $10 Million.

Farmer #2 replied, "Oh, it wouldn't change me. I'd probably just keep farming 'till I lost it all."

[BulldogTom]

That is a variation on the old line that goes like this:

How does a farmer end up with a million dollars at the end of the year? He starts with 2 million.

Tom

Lodi, CA

[jainen]

>>just keep farming 'till I lost it all.<<

In my opinion this thread is not about farming. It is about investing.