Author Topic: question on investing LLC real estate cashflow  (Read 1421 times)

sltintexas

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question on investing LLC real estate cashflow
« on: October 04, 2017, 07:30:50 PM »
I have a regular w2 job and am maxing out my 401k.  My wife stays at home with the kids and does not have any w2 income.
I have an LLC of which myself and my wife are members which is used for real estate investments.  Currently I hold 1 rental and 4 owner financed homes.  In total,  I'm collecting approx $2k a month after paying debt services and keeping some for reserves/taxes.   I'd like to invest as much of the cash flow as possible.
I asked an accountant about doing a simple IRA and funnel all the LLC cash flow through my wife.  He said he didn't think it was possible because it was considered passive income and that wasn't allowed for a simple IRA.

Anybody know the answer to that or have a suggestion on where to invest that money?

Proud Foot

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Re: question on investing LLC real estate cashflow
« Reply #1 on: October 05, 2017, 12:16:32 PM »
Are you already maxing out an IRA (Traditional or Roth depending on situation) for yourself and your wife?

sltintexas

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Re: question on investing LLC real estate cashflow
« Reply #2 on: October 05, 2017, 01:26:49 PM »
currently no, but I am building my plan to be able to invest $60k per year starting in January.

sltintexas

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Re: question on investing LLC real estate cashflow
« Reply #3 on: October 05, 2017, 02:18:43 PM »
correction about 45k will be my money. I accidentally included employer contributions

Catbert

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Re: question on investing LLC real estate cashflow
« Reply #4 on: October 05, 2017, 02:38:41 PM »
This type of LLCs is invisible as far as taxes are concerned.  It's not earned income so it has no impact on whether or not you can have an IRA.  The *only* benefit is that it protects your assets outside the LLC in most cases if someone sues the LLC for something that happened.

sltintexas

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Re: question on investing LLC real estate cashflow
« Reply #5 on: October 05, 2017, 02:47:34 PM »
so what does that mean?  I do not have anything like a sep ira etc available for investing?  Just an IRA?

katsiki

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Re: question on investing LLC real estate cashflow
« Reply #6 on: October 05, 2017, 04:32:35 PM »
I believe Catbert is saying that where the money comes from is irrelevant.  Money is fungible as many like to say.

If you are eligible to contribute to an IRA, you can use the "real estate money" to do so.


Catbert

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Re: question on investing LLC real estate cashflow
« Reply #7 on: October 05, 2017, 05:54:22 PM »
^^  Yep, Katsiki said it much clearer than I did.

Bicycle_B

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Re: question on investing LLC real estate cashflow
« Reply #8 on: October 05, 2017, 06:22:40 PM »
Money is fungible in some situations, but I think there are others where there are laws against using it the wrong way.  Laws enforced by IRS agents with fines and penalties at their disposal during audit.  I think that:

1. IRAs are for money earned by employment.
2. Many real estate investments are considered "passive", hence not employment, hence income from them not eligible for IRA.  Your account is telling you your properties are in this category.  He/she is expressing rules from the IRS about this.  Violate them at your peril.  If you don't like the accountant's opinion, get more details from him/her or find someone professional who is sure, but if they're right, they're right.
3. Other real estate investments are considered "active", hence self-employment, hence income from them is eligible for some types of IRA. 
4. IRA is not the only option for tax sheltering retirement income, but all of the govt-sponsored accounts related to income are based on employment, not passive income.  (I am differentiating these from accounts such as 529 education accounts.)  In tax planning, it's really important to learn the distinction between active and passive income.

Since you already have a 401k and an employer, why not do an IRA based on your regular job, where it's clearly legal?

Here is a summary of employment-related retirement accounts for self-employment, in case you quit your job. 
https://www.nerdwallet.com/blog/investing/4-retirement-plan-options-selfemployed/

If I were going to look for tax breaks on real estate because my real estate produced too much taxable passive income, I'd investigate buying passive income properties from within my IRA account(s)..including IRA accounts that I created by converting my 401k to an IRA if necessary.  Curious if the accountant has an opinion about that one...
« Last Edit: October 05, 2017, 06:31:57 PM by Bicycle_B »