Watching the election coverage has taught me that the $5000 limit on Roth IRA contributions applies to the nominal value of the investments you put into it, not to the amount of money you contribute.
Has anybody here used this little loopholes to put income-producing real estate or a business interest into their IRA?
For example, if you bought an undeveloped piece of land for $10,000 through a private holding company (cheap to create) and then transferred half ownership of the company into your IRA each year, your IRA would contain a $10,000 piece of property exempt from income taxes. If you then built a $100,000 house on that property and rented it out, the rental income would also be tax free. This seems like a way of adding value to your IRA (by building the 100k house) without bumping up against the $5k limit.
It seems private equity men do the same thing routinely with businesses; they buy a business and load it up with debt to reduce it's book value, transfer a fraction of ownership of the company into their personal accounts as part of their compensation, then have the company either work off or pay off the debt to reinflate the price of their holdings. Voila, million dollar Roth IRA and tax free income.
Has anybody here tried this plan personally? Are there hiccups I would need to worry about? Right now, this looks like it might pencil out for some landlords who specialize in renovating housing in depressed markets, or anybody who owns a private business and could control the book value through creative accounting.