EasyAnswers TIPS FROM AN ATTORNEY TO PROTECT YOURSELF — AND YOUR INVESTMENTS
When it comes to your real estate investing business, asking questions is part of the job, especially during tax prep season. Think Realty Resident Expert, financial advisor, and attorney Clint Coons offers his advice to questions he hears from clients every day.
Q: I took money out of my IRA to fund a real estate deal on August 22, and the money is due back within 60 days, or October 20. We went ahead and had mywife take a distribution from her IRA to use to repay my IRA. Now, we are left with owing my wife’s IRA $40,000 in less than 60 days and all our money is tied up in a deal that is months away from completion. What can we do to avoid getting hit with taxes on mywife’s $40,000 IRA distribution?
A: The answer is simple. Create a solo 401k sponsored by the corporation you are using to flip real estate. Roll your existing IRA into the 401k. Once the funds are in the 401k take out a $50,000 participant loan and use these proceeds to pay back your wife’s IRA. Your participant loan will need to be repaid within five years. Given the pending property completion, you will be able to pay the loan off sooner and all is put back in place.
Have a legal question that might affect your REI? Send questions to Think Realty’s editor at email@example.com.
30 | think realty magazine :: may 2020
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