If you hold real estate in a self-directed IRA or IRA LLC, this article is for you. Today, we’ll discuss how to safely and easily rollover real estate from your IRA LLC to a Solo 401k plan.
Clients often come to us frustrated with their current IRA situation. They’re paying hundreds, if not thousands of dollars a year to an IRA custodian so they can hold real estate in their retirement plan. Custodians generally charge an annual fee, an asset fee (per asset), transaction fees, and management fees. Meanwhile, the IRA LLC owner is the one doing the hard work. This effort usually includes making sure taxes are paid, management companies are in place, repairs are done as needed, etc.
Make life easy on yourself. Cut out the IRA middleman and rollover your real estate to a self-directed Solo 401k plan you control.
Transfer Real Estate to Your Solo 401k
Real estate can be a wonderful long term investment. The sophisticated investor can make a double digit return by investing in passive real estate with his retirement account. For a long time, the self-directed IRA and IRA LLC were the only real vehicles an investor could use to invest in real estate with a retirement account. And although the Solo 401k has been around for 16+ years, a lot of people still don’t know about it or how to utilize it.
Every Solo 401k by Nabers Group allows the Solo 401k owner to own real estate within his Solo 401k. As the plan is directed by the trustee, the trustee has the sole power and responsibility of handling the property. Thus, he has eliminated the need to pay third party fees. This also helps you get deals done faster, and without added custodial costs.
Rollover IRA LLC to Solo 401k
There are a few steps to of rolling over real estate from an IRA LLC. However, the process is fairly straightforward:
- Transfer Ownership of Property. Have your legal counsel help you prepare a grant deed to re-assign ownership of the asset from the IRA LLC to the Solo 401k trust. There are generally two parties in a grant deed: 1) Grantor, who’s transferring the asset, in this case the IRA LLC. 2) Grantee, who’s receiving the asset, in this case your Solo 401k trust.
- Report LLC Final Fair Market Value to your IRA Custodian. The final fair market valuation fo the LLC gives your IRA custodian a dollar amount of what the assets in the LLC are worth.Having this accurate figure makes it possible for your IRA custodian to correctly complete form 1099-R to document the movement of the assets leaving the IRA LLC and rolling into your Solo 401k trust.
- Dissolve the LLC. Complete and file the articles of dissolution with the Secretary of State where you formed the LLC. Then, send a copy of the Articles of Dissolution to your IRA custodian. This will help them unwind the IRA LLC for you since they will be able to document the LLC is no longer active.
- Complete your direct rollover. The IRA custodian should list the fair market value of the LLC as the amount to rollover, plus any liquid funds you are transferring. Specify for your IRA custodian that you are not transferring the LLC into the Solo 401k. Rather, you are rolling over the assets held inside the LLC over to the Solo 401k.
IRA LLC and Solo 401k Real Estate Best Practices
The property should be re-titled in the name of the Solo 401k trust, using the EIN for the Solo 401k trust. Never use your personal social security number or business EIN for Solo 401k-related transactions.
Once the property is retitled in the name of the 401k trust, you’re all done!
Many clients like to use a special-purpose LLC to add an extra layer of security to their real estate investments. If you want to go one step further by placing the asset in a special-purpose LLC, the final steps would be:
- Form the special purpose LLC specifically for the Solo 401k
- Complete an Investment Direction form. File this somewhere safe and share with your CPA
- Re-title the asset in the name of the LLC.
We strongly recommend the use of an attorney and/or titling company when re-titling the asset, to ensure the process is done correctly.
Once done, the Solo 401k owner can rest easy knowing they’re looking at low fees each year, regardless of how many assets are held within the Solo 401k or Solo 401k LLC.