Brain storming here.

We own a quadplex with our self-directed IRAs, held 50/50 by each. We carefully split the income, the repairs, etc. as required. Don't mess with the IRS!

It seemed like a good idea at the time (more than 10+ years ago) and it does generate WAY more proceeds than it would in the stock market.

But now we are in our 60's eligible to pull out money. And rapidly approaching when we have to take Required Minimum Distributions based on value of ALL IRAs. This one is held in a Traditional IRA so we will have to pay taxes on it, so we don't take any out yet.

Plan WAS to leave it to one of the kids but with the new IRA distribution laws not sure that's a favor - he would have to draw down total in 10 years.

What would you do? I'm tempted to hire John Hyre (LOL!) to help but he's busy and I thought I'd start with the cheapie way first. You all might know something obvious that I don't.

We can convert to Roth but again - taxes.

CHECK WITH A KNOWLEDGEABLE ACCOUNTANT to verify

Why not try this:

Sell the place to the kid (might not be allowed due to disallowed in family transfer. Check this. ) Sell it for full price with payments (effectively, you carry the note).

Kid gets the place out of the IRA and gets write offs, depreciation, etc. You get cash flow to your IRA. Then you take required distributions.

If it is not allowed, sell your place to a friend (not related) for the payments and get your friend to sell their place to your kid the same way. It's about like a 1031 exchange. As long as the money totals can be balanced, it doesn't really matter which building is which as long as everyone is happy. This gets the actual buildings out of the IRA's and a note in the IRA's to replace the buildings.

Sell the building, put the money into mutual funds or money markets, whatever else you chose... take your RMDs from there. This "pot of money" IRA your rental is worth, is transferred to a "pot of money" IRA you can withdraw on. When you die that IRA goes to your beneficiary(s). As long as you don't get that money in hand, there should be no taxes on it until you withdraw. (check is made out to xyz IRA account.)

Prominent accountant, Ed Slott, answers emails weekly on tax questions from his mail bag. You can check it out here: irahelp.com/IRAUpdates.php

You can sign up to receive his blog in your in box free and email your question to him and you may find your question answered in one of his weekly emails. Alot of good information, learned alot from them. You can unsubscribe at any time.

Good luck WMH!

W,

I don't know about any pandemic changes, so NORMALLY...

You cannot sell to Sonny. Disqualified person.

BOTH of you have to die for Sonny to receive the property.

I believe RMD starts at age 72.

On a traditional IRA we are only DEFERRING taxes. Consider selling it, paying the taxes you will have to pay anyway, plus the penalty and move the money in to a Roth. Play with the math. With appreciation it MIGHT be a beneficial maneuver.

It's just a house. They come and go. The EQUITY is what you wish to give away.

You can only gift so much to children each year before paying income taxes. (search for Krummy Trusts)

Famous rich guys children ask "Dad, are we rich?"

Dad says "*I* am and you live in my house."

I have informed my children that I fed them, straightened their teeth, and paid cash for 16 years of college, made sure they were strong people with great professions. They will do fine. Don't count on anything from me or Mom, it's OURS to spend.

Can't sell to Son. Disqualified. Can leave by trust & will which is how it is set up now. But with the CARES act changes, I'm not sure leaving him a traditional IRA is a good idea anymore. He has to draw down completely in 10 years now.

Can CONVERT to Roth, maybe, but big taxes to convert. And we can't OPEN a new Roth. Past the time limits, no W-2 income, etc. No penalties because we are older than 59.5, we could be pulling income from this place right now but don't need it.

I have a master's degree in Finance, I actually passed the competency test to become a CFP (Certified Financial Planner), and I manage our own investments as well as coaching other family members on their assets. I never practiced as a financial advisor, but I do know a fair amount.

I can't help on self-directed IRAs, but here are a few things I do know.

1) On topics so complex like this, I would always seek professional help.

2) Brad is right, the RMD age is 72 (used to be 70 1/2, they recently changed it). There is an exception for this year...gov't says due to pandemic you don't have to take one this year if you're 72 or older.

3) You can "gift" to any person any amount (not sure whether property is giftable though...you'd have to check) you want annually and neither you nor they pay taxes on it (unless...see note below). Many people think there is a $15,000/year limit. This is not true. If you gift over $15,000, you must file a special gift tax form, but neither of you will have to pay taxes. The $15,000 is per person...so you could gift $15k to your daughter and your wife could gift $15k...total of $30k gifted per child without having to file any special tax forms.

** Special note about gift tax. The above only holds true if your lifetime gifting is below the lifetime cap, which is currently around $11.6M. That is set to revert to the prior tax law cap of about $5.5M in 2026. The gift tax form from the IRS that you must file for amounts over $15,000 is so they can track your lifetime gifting.

Yes, estate planning got more complicated with the Secure Act. (It does not seem very secure to me.)

The Secure Act went into effect at the first of this year and made significant changes to the IRA rules.

The Secure Act did delay the start of the RMD from 70.5 to 72. The Secure Act also required inherited IRAs to be completely withdrawn within 10 years of inheriting the IRA.

(So much for this president wanting to lower taxes on the working people!)

The rules for the inherited spousal IRA did not change. The inherited spousal IRA withdrawals follow the normal rules of the surviving spouse (RMD start at 72 for non Roth accounts).

If your son inherits the $500,000 traditional IRA (or traditional self direct IRA), he has 10 years to completely withdraw all the money in the account and pay the taxes. Based on your son's income, his tax rate could be higher than yours and he will pay more taxes on the inheritance.

So, my plan is to convert almost all of our non Roth IRA money over to Roth by the time we are 72 (and pay taxes on the conversion). Since I am older than my wife, we are focusing on converting my accounts to Roth. Once my traditional IRA accounts are converted to Roth accounts, we will start on my wife's accounts.

We set aside money during the year to cover the tax bill at the end of the year for the IRA conversions.

We will leave some money in the traditional accounts to cover charitable donations. You can make a charitable donation directly from your traditional IRA and not pay taxes. The charity is taxed on that donation.