Many retirement investors feel boxed in. They have money inside an IRA or 401k but keep running into rules, penalties, and uncertainty. David Moore and Tom Moore, the 1031 Exchange Brothers Equity Advantage, work with investors who feel trapped by these limitations and are looking for better ways to use their retirement funds without triggering costly mistakes.
Why Traditional IRAs Feel Restrictive
David explains that most investors reach this point because they want to buy things Wall Street does not sell. Stocks and mutual funds are easy to manage because everything has a quoted price at any moment.
Problems start when investors move outside that system. Real estate, notes, precious metals, and private lending do not have daily pricing. Once these assets sit inside an IRA, valuation and compliance suddenly matter much more. This is where many investors begin to feel stuck.
Required Minimum Distributions (RMDs) and the Valuation Problem
Tom explains that once someone reaches age 73, Required Minimum Distributions (RMDs) are unavoidable. Custodians typically send RMD information electronically, which makes it important to pay attention to notices and statements.
The RMD amount is based on the total value of the IRA. When alternative assets are involved, custodians still need a reasonable valuation. Real estate is commonly valued using a broker market analysis rather than a formal appraisal, while notes are valued based on remaining principal and precious metals are valued using spot prices as of a specific date.
David points out that before RMD age, valuations matter less because nothing is being distributed. Once RMDs begin, accuracy becomes critical. The stakes rise further when assets are distributed instead of cash.
What Happens When There Is Not Enough Cash
Liquidity is a common concern. Wall Street often labels real estate and similar investments as illiquid. David raises the practical issue of what happens when an IRA holds valuable assets but does not have enough cash to satisfy an RMD.
Tom explains that distributions do not have to be cash. IRA owners can take in-kind distributions. This could mean distributing a portion of a property or shares of an IRA LLC. This approach can solve the cash problem, but it introduces additional planning considerations.
David stresses an important warning. An in-kind distribution creates taxable income even though no cash is received. Investors need to plan ahead so they are not left owing taxes without the funds to pay them.
How a Checkbook IRA Works
Much of the strategy centers on the checkbook IRA, sometimes called an IRA LLC. Tom explains that the IRA owns an LLC and then the investor serves as manager. The LLC has its own bank account, EIN, and operating agreement.
This structure allows the investor to write checks, send wires, and make offers directly in the LLC’s name. The custodian sees only one asset, the LLC itself. Inside that LLC, investors can own rental properties, land, notes, or precious metals.
David emphasizes that this flexibility is powerful, but only when the structure is done correctly from the beginning.
Why DIY IRA Setups Are a Minefield
David is direct about the risks of setting up an IRA LLC without guidance. Many people register an LLC incorrectly, list themselves as a member, or use operating agreements that custodians will not approve.
Tom adds that even attorneys often lack experience with IRA-specific rules. When errors are discovered, the result is often a complete redo. In some cases, the mistake cannot be fixed at all. A prohibited transaction can cause the entire IRA to be treated as distributed as of the first day of the year.
As many people unfortunately find out too late, personally tying up a property and assigning it to an IRA later is a prohibited transaction. Once that line is crossed, there is no way to undo it.
A Smarter Way Forward
Self-directed IRAs are not new. However accurate information on how to use them is still not widely available. They can be a powerful strategy and the rules governing them are manageable when addressed upfront, but they are very unforgiving when rules are ignored.
If your retirement account feels restrictive or risky to navigate, start with a conversation before taking action. Contact IRA Advantage today to start reviewing your goals, funding sources, and investment structure early so you can help protect your retirement from mistakes that cannot be reversed.
The Guys With All The Answers…
David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 800-475-1031.
