QUESTION:
My wife has a self directed IRA at IRA Services, One of the assets held there is an investment in a multi-member LLC which in turn owns an apartment project in Springfield Maryland. Due to depreciation and interest expenses, and the IRA’s relatively low % of ownership, earnings have never exceeded $1000 per year.
- The apartment project is going to be sold early next year, I anticipate this will result in a sizable gain and with the current situation the IRA will be subject to significant tax due to UDFI.
- My specific question is: if we set up a solo 401k, instruct IRA Services to transfer the IRA owned percentage of ownership to the 401k, and instruct the LLC manager to change the ownership on its records – all before the end of 2016 – will we escape the taxes on the sale on gains in 2017?
ANSWER:
Once an IRA is transferred to a solo 401k, the IRA rules no longer apply; instead, the solo 401k rules apply and a solo 401k plan is not subject to UDFI.
Therefore, the IRA and its assets (e.g., LLC) may be transferred in-kind to a solo 401k plan provided the individual is self-employed with no full-time employees
