Advanced IRA Strategies: Leveraging, UBIT, 401(k)s, and Checkbook LLCs


Description

In this fourth training session, I’m taking you beyond the basics. We’ll talk about how to use leverage in your IRA with non-recourse loans, what happens with UBIT/UBTI (Unrelated Business Income Tax), and why it matters when you borrow money or buy a business inside your IRA. I’ll also break down prohibited transactions so you don’t make costly mistakes. On top of that, we’ll dive into self-directed 401(k)s and checkbook LLCs — powerful tools that give you more control if you set them up the right way.

This is more advanced material, but don’t worry — I’ll give you real-world examples and a step-by-step way to keep things safe, legal, and profitable.


Key Takeaways

  • You don’t need $100k+ to get started — knowledge and the right plan are more important than money.

  • Leveraging your IRA with non-recourse loans allows you to buy bigger deals, but you must understand UBIT/UBTI.

  • UBIT/UBTI applies when your IRA owns an operating business, and UDFI applies when you use debt to buy real estate.

  • Even if taxes apply, you’re still often better off compared to traditional income taxes.

  • Banks offering non-recourse loans usually require: 30% down, cash-flow coverage of 125%, reserves, and eligible property types.

  • Prohibited transactions include lending to yourself, your kids, parents, or spouse, or using your IRA property personally. (Brothers, sisters, aunts, uncles, nieces, nephews are NOT disqualified.)

  • Self-directed 401(k)s allow higher contribution limits, Roth options, and even checkbook control — but require proper setup and compliance.

  • Checkbook LLCs can work, but they’re heavily audited — protect yourself with an attorney’s opinion letter based on the Swanson case.

  • “Pay tax on the seed, not the harvest” — Roth accounts create tax-free growth for life.


Action Steps / Exercises

  1. Calculate a Leveraged Example: Take a hypothetical $100,000 IRA investment where you borrow $50,000. Calculate what portion of income would be subject to UDFI.
  2. Prohibited Transaction Drill: Make a two-column list:
    • Allowed transactions (buy rental from a third party, invest in an LLC, lend to another investor’s deal).

    • Prohibited transactions (buy property for your child, paint your own IRA rehab, lend to your spouse).

  3. Review Your Plan Options: Compare whether a self-directed IRA or a solo 401(k) fits you better (look at contribution limits, control, reporting).

  4. Research Custodians: Identify at least one bank or lender offering non-recourse IRA loans.

  5. Checkbook LLC Homework: If you’re curious, read a summary of the Swanson case and write down one question you’d want to ask an attorney before setting one up.