Structuring Deals, Avoiding Overfunding Mistakes, and Staying IRS-Compliant


Description

In this session, I walked through Rod’s deal — how he structured 21 houses inside his Roth IRA using seller financing, contributions from two tax years, and careful planning. We broke down what happens if you overcontribute to your IRA, how to fix it, and why it sometimes still makes sense to take the 6% penalty. We also covered rules on property management, why you can’t mix personal funds with IRA money, and how UBIT/UDFI works when you borrow money inside your IRA. Plus, I answered live questions about trusts, inherited IRAs, required distributions, and converting to a Roth.


Key Takeaways

  • The annual IRA contribution limit is $6,000 (or $7,000 if over 50) — regardless of how many IRAs you have.

  • You can “stack” contributions across two years if timed correctly (e.g., one in December, one in January).

  • Overcontributions can be corrected before year-end or carried forward with a 6% penalty.

  • Always run all money through the IRA — never pay out of pocket and reimburse yourself.

  • You cannot manage your IRA-owned property personally — no painting, mowing, or repairs.

  • Property managers are allowed, but they cannot be a disqualified person (spouse, kids, parents, or entities you own).

  • UBIT applies to operating businesses; UDFI applies to leveraged real estate inside an IRA.

  • Even if UDFI taxes apply, depreciation and expenses offset much of it, and deals often still outperform.

  • Balloon payments can be planned for and funded directly from cash flow inside the IRA.

  • Always title assets correctly and use trusts for control, privacy, and asset protection.


Action Steps / Exercises

  1. Check Your Contribution History: Verify how much you’ve contributed this year and confirm it’s within the IRS limit.

  2. Run a Scenario: Calculate what happens if you overcontribute $12,000 — what’s the penalty, and how could you correct it?

  3. Prohibited Transaction Drill: List 3 things you cannot do with your IRA property (e.g., mow the grass, hire your own company, pay repairs personally).

  4. Leverage Example: Run numbers on a $100,000 property purchased with $10,000 down from your IRA plus $90,000 in debt. Estimate UDFI tax impact after depreciation.

  5. Trust Exercise: Draw a diagram showing how a land trust or personal property trust could hold assets for your IRA.