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L1: Mortgages
Does anyone have any experience with lenders and how they view SEPP plans? Specifically I plan on building a portfolio of rental real estate in early retirement and was curious if lenders treat SEPP payments like ordinary income. Arguably its a better source of funds than having a job as you can’t get fired from it but you never know with banks.
2018-07-17 21:11, By: mike5763, IP: []

L2: Mortgages
I’m not sure if you are asking about an area called “SELF-DIRECTED IRAs”. These involve “ROBS” (Rollovers as Business Start-ups) and “BORSA” (Business Owner’s Retirement Savings Accounts), including Real Estate Investments. I advise and lecture clients and tax practitioners against these situations for about a dozen reasons, which makes it too long for this forum.
Basically, you are not allowed to have any involvement in the activities of the applicable properties or businesses. If you are involved in any way, they become disqualified investments, and the taxes, penalties, and interest can be devastating. There are several companies who market these programs, but rarely will they “guarantee” that the IRS will not audit them or approve them, let alone agree to represent you at no cost, and to refund any fees you paid them. In some situations, these will even cause problems because of UBTI & UDBI.
I suggest that you research the IRS Audit Manual in this area, as well as the Peak Case and the Swanson Case. You should also review your plans with a professional tax practitioner who is knowledgeable in this area.
As far as Mortgages, be prepared to pay higher interest rates than for mortgages not in a retirement plan, and possible issues in getting property and liability coverage. There are a limited number of financial institutions and representatives who under Self-Directed IRAs, and almost none who have even heard of a SEPP. Your question seems to me to indicate that you expect to be able to get mortgages for these properties outside of the SEPP IRA because you asked if the banks would consider SEPP distributions as applicable income. The banks would not care what the source of the income is, and quite frankly would probably be quite pleased to know that there is a steady flow of income from the SEPP IRA to you personally, but the IRS would look askance if there was some relationship between the mortgages and the rental properties if they were owned by the SEPP IRA.
2018-07-17 22:35, By: dlzallestaxes, IP: []

L3: Mortgages
My apologies for not being totally clear. I was asking about obtaining financing outside of the IRA world where i personally (or more likely an LLC) would be the owner. Curious about how a lender would look at my SEPP distributions from an income/underwriting perspective. Agree with you it should be viewed very favorably but wasn’t sure if anyone had any firsthand experience. I’ve looked into buying real estate using my self directed IRA but as you state the constraints make it too difficult for my purposes.
2018-07-18 14:31, By: mike5763, IP: []

L4: Mortgages
I’m glad that you are not using your IRA (SEPP or other) for your real estate venture(s).
We usually recommend that new real estate rental activities be in an LLC, or separate LLC’s for each of them, especially if any are in different states. This is for personal liability protection. Some practitioners think that an umbrella personal liability policy provides adequate protection. You should ask your insurance agent about the most practical approach to coverage and cost.
If you are going to have multiple rental properties, talk to your tax professional about the special provisions concerning Passive Activity Loss Limitations (PAL), Grouping of Activities, and Real Estate Professionals.
2018-07-18 15:54, By: dlzallestaxes, IP: []