My Dad wants to roll his IRA over to an RIRA and use the money to buy my brother a townhouse. Is this a bad idea?
The Facts: My dad wants to roll over an Individual Retirement Account (IRA) to a Real Estate IRA (RIRA). He will use the RIRA to purchase a townhouse for a total cost of $220,000 (this will be the only asset owned by the RIRA). All RIRA financial commitments, debits, and credits shall be recorded on the RIRA account ledgers. There will be no mixing of RIRA funds and personal funds. He plans to rent the townhouse to my brother for $1,554 per month. The rent will be calculated as shown here
. In a nut shell, my brother will pay rent each month equal to the reoccurring monthly expenses (tax, insurance, etc.) plus 3% interest.
- Would this be considered a prohibited transaction by the IRA?
- When the townhouse is eventually sold and the funds are in the RIRA, can my Dad roll them over to an IRA?
- Can he take distributions from the RIRA?
- Can he manage the rental or does it have to be someone else? In other words, can he be the one responsible for finding tenants, arranging leases, getting insurance, making repairs, or would this be prohibited by the IRS?
- Bottomline: Is this a bad idea? Is this too risky? What are the pitfalls that you see?
Thanks in advance for any help you can give us.