Expert: Allen - 2/17/2004

Question
thanks Allen, my fax number is (203) 268-8071


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Followup To
Question -
Allen,

I just learned that the real estate investment is being set up as a LLC and not a limited partnership. My brother-in-law is the one putting the deal together which involves the purchase of a large apartment building and an adjacent building lot with favorable zoning. He already has lined up seperate buyers for the the building and lot once the deal closes. It's a no brainer. In your opinion can I invest these IRA funds?


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Followup To
Question -
I have IRA funds with a brokerage house that are invested in individual stocks that have done very poorly and I've lost over 75% of my investment to date. I learned of a limited partnership real estate investment that I can easily double my money in 12 to 18 months. Can I pull the IRA money from the brokerage house and turn the funds immediately over to the limited partnership as an IRA investment or do the funds have to be held by a IRA approved institution?
Answer -
The law allows you to invest IRA money in a limited partnership. However, the financial institution holding your IRA account must allow this type of investment. Most institutions won't. So if you feel you should invest in the partnership, you must find an IRA trustee that allows the investment. You would then transfer your current assets (whether it's individual securities or the cash your account receives when it sells the securities) to that trustee.
While you didn't ask, I would caution about investing  money in something that is supposed to double over a short period of time. There is no sure thing in investments. Increased potential rewards come with increased potential risks. What sort of commission is the person selling the investment receiving? Check the prospectus. Why is he/she not putting every penny he has (and borrowing to have more to invest) in the investment? Who will you sell to after it doubles? I am not saying that you shouldn't invest in this partnership. I am just cautioning you to be aware of the risks before you purchase.
Answer -
You can. But you need to find a trustee. If you give me a fax number, I will send you an OLD list of potential trustees. Call me at 301-762-6600 x3013.
Sorry for the investment lecture. Sounds like there's an excellent chance this one will work.  

Answer
It's on the way. Please note that this is an old list so I can't vouch for the accuracy. Also note the trustees will charge an annual fee so shop around.
One other possibility to check on. You could take a taxable distribution from the IRA. You would have to pay income tax on the distribution and the 10% excise tax if you are younger than 59 1/2. But you could buy your piece of the LLC personally (in effect you would be a member) and if you hold for more than 12 months, the sale and gain might qualify for the low capital gains rate.