Image via Wikipedia I’ve mentioned before about various types of transactions that are not allowed in your IRA, but we’ve not actually covered the topic of Unrelated Business Taxable Income (UBTI) in your IRA. UBTI isn’t prohibited within an IRA, but it does pose problems and adds a great deal of complexity to your account. Unrelated Business Taxable Income So, what is UBTI anyway? The concept of UBTI pre-dates IRAs – it was originally developed in relation to charitable organizations, trusts, and other tax-exempt entities. The IRS developed this concept to ensure that tax-exempt organizations didn’t have a competitive advantage over taxable organizations, such as for-profit corporations. The way that income is determined to be “unrelated” is by checking these two tests: Is the income from a trade or business that is regularly carried on? Is the trade or business unrelated to the tax-exempt entity’s exercise of the entity’s tax-exempt […]
ubti
Real Estate Investing in Your IRA
From time to time this question comes up: why can’t I use my IRA account to purchase a retirement home? After all, for many folks, the IRA represents a pretty large account, possibly even enough to purchase a retirement home outright – so why not? No Personal Use This is a thorny question, because there are lots of restrictions around this sort of purchase with an IRA account. First of all, you need to understand that you cannot use the real estate personally, if it is owned by your IRA. Specifically, you, your spouse, heirs, and any other linear relatives can not use such a piece of real estate while your IRA owns it. That factor in itself should answer the question for a lot of folks. So, for example you could not – purchase a home in a sunny clime and use it for your own purposes two months […]
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And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.