Investing Your IRA
Investing Your IRA - Real Estate
Please refer to the following checklist for step-by-step instructions on purchasing real estate with IRA funds: Real Estate in an IRA.
Title is held in the name of “Madison Trust Company Custodian FBO [Your Name]”.
All expenses associated with your IRA investment must be paid for with IRA funds.
You will instruct Madison Trust Company to pay expenses by completing an Expense Payment Request Form. You will attach a bill or invoice to ensure that the payment is delivered to the appropriate address. To protect your account from fraud, Madison will process the request after receiving verbal confirmation from you.
Alternatively, the IRA LLC can retain the services of a management company to manage the property, pay expenses and receive property income.
Please complete a Deposit Information form notifying Madison Trust of the incoming funds. In Section B, please select “Deposit from Investment” so that deposit is classified correctly.
Yes, you may obtain financing; however please keep in mind the following:
- The loan should not be issued by a Disqualified Person as that would constitute a prohibited transaction with negative tax consequences.
- Additionally, the loan must be non-recourse. This means that the loan is backed by the property and not by the borrower personally. One cannot personally guarantee a loan issued to their IRA as that would constitute a prohibited transaction.
- Lastly, when an IRA uses leverage to purchase an investment then the earnings attributable to the leveraged portion are subject to UDFI (Unrelated Debt Financed Income) and the filing of Form 990-T is required.
All investments made by your IRA are to benefit your IRA exclusively and not yourself personally. Living in the home violates IRS rules and would constitute a Prohibited Transaction.
You will provide a copy of the Purchase Agreement along with an Investment Authorization form to Madison Trust. Madison will forward the earnest money deposit to your broker or escrow agent.
You will sign the closing documents in your capacity as the accountholder. Madison Trust Company will sign the closing documents as well, in its capacity as custodian.
No. It is the accountholder’s responsibility to ensure that the Deed is recorded with the county clerk’s office where the property is located, although this is usually handled by the escrow agent/attorney.
Please provide Madison Trust with the following items:
- Property Appraisal prepared by a licensed appraiser
- Draft of deed showing change of ownership
- Distribution Request
Madison will return the fully signed Deed to you for recording at the appropriate county clerk’s office and will issue a form 1099-R the following January.
Yes, your IRA can invest in a Private Placement or an LLC which conducts real estate transactions.
No. We will reach out to you in January to request a year end value of your property. You can provide us with the approximate market value of the property in lieu of an appraisal.
Investing Your IRA - Private Placements
Please refer to the following page which provides step by step instructions on investing in a Private Placement with IRA funds.
Your investment should be titled as follows: “Madison Trust Company Custodian FBO [Your name][Your MTC Account #]”.
You will contact your investment sponsor to complete their Redemption paperwork. Please forward the redemption paperwork to Madison Trust for countersignature. Your investment sponsor will send the proceeds to your Madison IRA.
You will complete an Investment Authorization form and provide us with a copy of the Capital Call Notice. If a Capital Call Notice is unavailable, then you can provide a Letter, Notice or an additional Subscription Agreement from your Investor Sponsor.
Dividends will be issued to “Madison Trust Company Custodian FBO [your name][your MTC Account #]” and deposited directly into your IRA.
K-1s issued by your Investment Sponsor will show whether the proceeds of your investment are subject to Unrelated Business Income Tax.
If taxes are due, your Accountant or Tax preparer will prepare Form 990-T.
The form will be sent to Madison Trust for signature. Madison will sign the 990-T on behalf of your IRA and file it with the IRS.
Investing Your IRA - IRA LLC
An IRA LLC is a Limited Liability Company funded exclusively with retirement funds. The LLC operating agreement is generally prepared by an ERISA attorney or IRA LLC Facilitator. The Operating Agreement must include language related to IRA rules and regulations. The member of the IRA LLC is titled as follows “Madison Trust Company Custodian FBO [Your Name][Your MTC account #]. The non-compensated Manager of the LLC is generally the IRA Accountholder. IRA LLCs are a convenient tool for investments that are transaction heavy or time sensitive. IRA LLCs offer checkbook control. This means that all activity related to the IRA Investment (such as purchasing assets, paying expenses, depositing income) is handled by the LLC Manager. All transactions that are reportable to the IRS are still handled by the custodian.
Funds are moved from your IRA LLC to your Madison IRA and then distributed to yourself personally.
- You will issue funds from your LLC checking account to your Madison IRA using the Delivery Instructions form. Please provide a Deposit Information form documenting the source of funds. In Section B, you will select “Deposit from IRA LLC”.
- Please provide Madison with a Distribution Request, requesting that the funds be sent to yourself personally.
No, as LLC ownership would be shifting from a Disqualified Person to an IRA Asset (constituting a prohibited transaction). Also, the LLC paperwork must include language related to IRS rules and regulations. The LLC Operating Agreement should be prepared by an ERISA attorney or an IRA LLC facilitator.
Please refer to the following checklist which provides step by step instructions on investing in an IRA LLC: IRA LLC Checklist.
Generally the IRA Accountholder is the non-compensated manager of the IRA LLC.
The IRA is the member of an IRA LLC and is titled as follows: “Madison Trust Company Custodian FBO [Your Name][Your MTC Account #]”.
Profits from your investment should be deposited into your IRA LLC checking account.
The Contribution is deposited into your Madison IRA and then invested into your IRA LLC.
- Send the contribution to Madison Trust using the Delivery Instructions form.
- Provide Madison Trust with a Deposit Information form to identify the deposit type. In Section B you will select “Annual contribution”
- Instruct Madison to invest the funds into your IRA LLC by completing an Investment Authorization form.
Madison Trust Company will reach out to you in January of each year to request the value of your IRA LLC. Madison will report this information to the IRS on Form 5498.
Investment expenses should be paid directly from the IRA LLC checking account.
First, funds must move from your IRA LLC to your Madison IRA. Then, Madison will send funds to the receiving custodian.
- Send funds from your IRA LLC to Madison Trust using the Delivery Instructions.
- Provide Madison with a Deposit Information form, documenting the source of funds. In Section B you will select “Deposit from IRA LLC”.
- Contact the receiving custodian and complete their non-ACAT Transfer Paperwork.
- Madison will send funds to the receiving custodian upon receipt of their transfer paperwork.
First, funds must move from the outgoing IRA Custodian to your Madison IRA. Then, Madison will invest the funds into your IRA LLC.
- Please complete a Transfer Authorization form and attach a recent account statement from the outgoing custodian. Provide Madison with a copy of the form via Madison’s secure upload portal.
- Contact your outgoing custodian to liquidate the account.
- Provide Madison Trust with an Investment Authorization, instructing Madison to send the funds to your IRA LLC.
Investing Your IRA - Promissory Notes
Please refer to the following checklist for step by step instructions on issuing a loan from your IRA.
All investments made by your IRA are to benefit your IRA, and not yourself personally. Issuing a loan from your IRA to yourself personally is a violation of the IRC and has adverse tax consequences.
Titling is held in the name of your IRA as follows: “Madison Trust Company Custodian FBO [your name][your MTC Account #]”.
The Lender would refer to the terms of the note and take appropriate legal action to attempt to collect the debt.
It is the accountholder’s responsibility to calculate the payoff amount and prepare a payoff statement.
Unsecured Promissory Notes– You will provide Madison Trust with a Satisfaction of Note. Madison will sign the Satisfaction on behalf of your IRA and retire the asset.
Secured Promissory Note– You will provide Madison Trust with a Release of Mortgage or a Request of Full Reconveyance. Madison will sign the Satisfaction on behalf of your IRA. If the document needs to be recorded, then Madison will send a copy to you for recording.