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Getting Cash flow out of a self directed IRA
Old 09-06-2015, 01:31 PM   #1
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Getting Cash flow out of a self directed IRA

I have a self directed IRA that owns real estate.
I only have one condo in it right now but am considering buying another one.
The first one only gives me around $300 right now in profit because it has a mortgage on it.
I'm thinking of buying another property for around $90K that would give me around $1200 in monthly gross rental and net around $800.

So that $800 and $300 would be $1100 a month.
If I paid uncle Sam his $330 a month 10% penalty and 20% tax that would leave me around $770 a month to use to pay some of my housing expenses.
I'm hoping that the properties would continue to appreciate for future sale.

Has anyone done anything like this?
Taking cash flow from your self directed IRA?
Can this be done monthly or do you have to do just one yearly transaction?

Thanks.
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Old 09-06-2015, 01:56 PM   #2
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The tax on any early withdrawals from a T-IRA is not 20%, that is only the withholding required. The actual tax will depend on your marginal income tax rate when you properly prepare your annual return. 0% to 39.6% depending on your other income and deductions.
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Self directed 401k
Old 09-06-2015, 03:26 PM   #3
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Self directed 401k

Yes! I rolled all of my and my wife's IRAs into a self directed 401k that I am using to own real estate. I keep my excess funds working in my etrade account and own a small rental property with a 5% return. I am looking to buy another property as my cash reserves will allow. This gives me roughly 5% return on the real estate investment plus any appreciation value. I hire a property manager so I don't have the headaches of managing rental property. The tough thing is that you either have to pay cash or get a "non-recourse" loan (which is available at a higher interest rate with a high down payment).

It was interesting setting up the accounts as most bankers are unaware this can be done. I am working with a professional in that field and I suggest having competent advice before setting out on this path! And, yes, there is a fee to have it administered due to annual reporting requirements, but, in my opinion, the cost is minimal compared to the return and stability of the investment.


I just got tired of the fluctuating stock market and wanted something with a more steady, predictable income. Sure, vacancies can be an issue, but overall, I am always making a 4-5% return as I try to buy in an area with demand. I realize real estate has it's flaws too, but being in that business for 40 years gives me a certain "comfort level" that I don't have in the stock market.
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Old 09-06-2015, 03:48 PM   #4
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Quote:
Originally Posted by CK2015 View Post
I have a self directed IRA that owns real estate.
I only have one condo in it right now but am considering buying another one.
The first one only gives me around $300 right now in profit because it has a mortgage on it.
I'm thinking of buying another property for around $90K that would give me around $1200 in monthly gross rental and net around $800.

So that $800 and $300 would be $1100 a month.
If I paid uncle Sam his $330 a month 10% penalty and 20% tax that would leave me around $770 a month to use to pay some of my housing expenses.
I'm hoping that the properties would continue to appreciate for future sale.

Has anyone done anything like this?
Taking cash flow from your self directed IRA?
Can this be done monthly or do you have to do just one yearly transaction?

Thanks.
This sounds like a bad idea to me - you're starting off a premise of paying a penalty in addition to taxes on your IRA money.

An IRA is designed to grow your money till you're at least 59.5 unless you do a 72T. Even a 72T would probably not let you withdraw the amount you are talking about.

What do you plan to spend when you are older? You mention in your other post that you are child free, so there is no chance you can talk your kids into letting you live rent free like the deal your mother has with you.

As I advised in the other thread. Instead of looking for ways to to spend money you don't have access to (the jointly titled real estate, your IRA, etc.) you need to reduce spending, pay down debt, and get some more income coming in.
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Old 09-06-2015, 03:58 PM   #5
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Originally Posted by RE2Boys View Post
The tax on any early withdrawals from a T-IRA is not 20%, that is only the withholding required. The actual tax will depend on your marginal income tax rate when you properly prepare your annual return. 0% to 39.6% depending on your other income and deductions.
My tax will be low as I have very little income right now.
Not sure if 0% but low. I haven't finished my 2014 taxes yet but should have a better idea when they are done.
Thanks for the info.
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Old 09-06-2015, 04:02 PM   #6
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Originally Posted by Chasing Retirement View Post
Yes! I rolled all of my and my wife's IRAs into a self directed 401k that I am using to own real estate. I keep my excess funds working in my etrade account and own a small rental property with a 5% return. I am looking to buy another property as my cash reserves will allow. This gives me roughly 5% return on the real estate investment plus any appreciation value. I hire a property manager so I don't have the headaches of managing rental property. The tough thing is that you either have to pay cash or get a "non-recourse" loan (which is available at a higher interest rate with a high down payment).

It was interesting setting up the accounts as most bankers are unaware this can be done. I am working with a professional in that field and I suggest having competent advice before setting out on this path! And, yes, there is a fee to have it administered due to annual reporting requirements, but, in my opinion, the cost is minimal compared to the return and stability of the investment.


I just got tired of the fluctuating stock market and wanted something with a more steady, predictable income. Sure, vacancies can be an issue, but overall, I am always making a 4-5% return as I try to buy in an area with demand. I realize real estate has it's flaws too, but being in that business for 40 years gives me a certain "comfort level" that I don't have in the stock market.
I am already set up with Equity Trust with my first property in there.
Did it on the advice of an accountant I was working with who was a "wealth management" specialist or so he said.

I've been a realtor for 20 years myself and like you that is my comfort zone. I know it is not everyone's and I totally get that but for me it was what I enjoyed doing. Until I got sick I managed all my tenants. At one point I was managing 11 units and working full time as a nurse. I am no slackard. I am used to working hard but when you can't any longer you can't.

I wouldn't mind doing some lending with my self directed account and I sure have the opportunity at my local REIA club.
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Old 09-06-2015, 04:07 PM   #7
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Originally Posted by rodi View Post
This sounds like a bad idea to me - you're starting off a premise of paying a penalty in addition to taxes on your IRA money.

An IRA is designed to grow your money till you're at least 59.5 unless you do a 72T. Even a 72T would probably not let you withdraw the amount you are talking about.

What do you plan to spend when you are older? You mention in your other post that you are child free, so there is no chance you can talk your kids into letting you live rent free like the deal your mother has with you.

As I advised in the other thread. Instead of looking for ways to to spend money you don't have access to (the jointly titled real estate, your IRA, etc.) you need to reduce spending, pay down debt, and get some more income coming in.
I know it's a bad idea and I would not be using it for it's intended purpose, but I was hoping to just do this until my business made enough money to sustain me and then I'd still have the property depositing money going forward instead of eating up my seed money by withdrawing my retirement funds.
Maybe it's the same thing in the end but I feel that still having the property despite taking out the profits would still hopefully leave me with an appreciated asset that one day can be sold with terms and continue the cash flow.

When I become 65 I will take a reverse mortgage to raise my needed funds. I don't see the point in owning a property free and clear at that point. If reverse mortgages are not an option then I will downsize or just rent in a retirement community.

What is a 72T?
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Old 09-06-2015, 04:16 PM   #8
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Will you be able to take a reverse mortgage with your mother on the title? How is the property titled? If it's titled in a way she can leave her share to others - you could be screwed. She won't let you refinance now - why would she let you do a reverse mortgage?


72T is a fairly complicated way to take equal distributions of an IRA over a series of years, prior to age 59.5 (and sometimes past) without penalty. I say complicated because it has to be handled just right or you end up owing penalties on the withdrawals. There are forum members here who have done it. I did not consider it because we had rental income, taxable accounts, etc to cover the income needed prior to 59.5.

You might run into problems with a 72T if the IRA did not generate enough income to cover your withdrawal, and was illiquid (in the form of real estate.). IMO it's not a good fit for you if you plan on investing the IRA entirely in real estate.
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Old 09-06-2015, 04:30 PM   #9
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Will you be able to take a reverse mortgage with your mother on the title? How is the property titled? If it's titled in a way she can leave her share to others - you could be screwed. She won't let you refinance now - why would she let you do a reverse mortgage?


72T is a fairly complicated way to take equal distributions of an IRA over a series of years, prior to age 59.5 (and sometimes past) without penalty. I say complicated because it has to be handled just right or you end up owing penalties on the withdrawals. There are forum members here who have done it. I did not consider it because we had rental income, taxable accounts, etc to cover the income needed prior to 59.5.

You might run into problems with a 72T if the IRA did not generate enough income to cover your withdrawal, and was illiquid (in the form of real estate.). IMO it's not a good fit for you if you plan on investing the IRA entirely in real estate.
I am 50 now. Mom is 79. She'll be 94 when I am 65.
I doubt by then if she is even around that I will still have this problem with her.
We own the property as joint tenants with right of survivorship which here in FL means that her heirs do not get that half.

I have 200K sitting in a balanced fund with my previous employer in the state run pension investment plan option. I have heard that there is a way to get that money at 55 without paying penalties. Is that a 72T they are talking about?
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Old 09-06-2015, 11:39 PM   #10
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How will you handle RMD'S, when you turn 70 1/2? Currently, you have to take out a little less than 4% the first year.

Amount is based on the value of your IRA. Which is your rental property.
If your "cash flow" is not enough, will you have to sell the property?
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RMDs not a problem
Old 09-07-2015, 12:22 AM   #11
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RMDs not a problem

For me, by the time I'm 70 1/2 i plan on being back in cash and/or funds. At a minimum, i would expect to not be fully invested in real estate at that time.
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Old 09-07-2015, 12:47 AM   #12
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How will you handle RMD'S, when you turn 70 1/2? Currently, you have to take out a little less than 4% the first year.

Amount is based on the value of your IRA. Which is your rental property.
If your "cash flow" is not enough, will you have to sell the property?
I'll probably sell it with terms and take the mortgage payments as my cash flow.
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