IRA purchased a home…now what? (SECURE act)

Submitted by dan casey on Sat, 2020-01-25 21:28

I have a client that rolled a 401k into an IRA and than purchased a second home (now being rented, will be their main home when retired). How is the SECURE Act going to affect this? When they both die, will the kids be forced to get a mortgage to pay it off within 10 years?



Submitted by Alan - IRA critic on Sat, 2020-01-25 22:25

  • The Secure Act is the least of their problems.  They cannot occupy a property held in their own IRA as that is a prohibited transaction that would result in a taxable distribution of the IRA. Therefore, if they still intend to do that they must first distribute the home out of the self directed IRA, pay the taxes on the distribution and re title the home to themselves. In fact, even while a rental they must pay all expenses on this home such as property taxes, legal, insurance, and repairs out of the IRA. Hopefully, they have not already been in violation of the prohibited transaction rules. 
  • If instead they kept this home as a rental, when the second spouse passes and the children inherit, they will be subject to the 10 year rule, but that is probably many years away. At that point the children will be subject to the same prohibited transaction rules as their parents were, and could make costly errors. Self directed IRA custodians may be able provide information to the parents ASAP that explains all the pitfalls of owning real estate in a self directed IRA.


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