July 18, 2007

Webinar“Self-Directing Your Retirement Plan for Real Estate:

What Can I Really Do?”Mathew N. Sorensen, J.D.

www.kkolawyers.comCedar City ~ Las Vegas ~ Beverly Hills ~ Salt Lake City

Telephone 435.586.9366 / Facsimile 435.586.9491

© Kyler Kohler & Ostermiller, LLP 2007

Disclaimer- Although the information contained in this Presentation may be extremely useful and helpful, please understand that the presentation of this information does not constitute an attorney-client relationship. Moreover, the information contained in this Presentation is for general guidance only. It is strongly recommended that each individual or entity obtain their own legal advice, particularly applied to their own set of circumstances, facts and specific situation. Kyler Kohler & Ostermiller, LLP is not responsible or liable for any advice that is taken and applied in a situation without direct consultation and representation specific to that individual’s or company’s needs.

Instructor Notes

© Kyler Kohler & Ostermiller, LLP 2007

Prohibited Transactions

Cannot Buy From Or Sell To… The IRA Owner.

Plan Decision Maker.

Plan Service Provider.

Spouse, Parents, Children & their Spouses.

Corporation, Partnership, Trust, or Estate where 50% or more is owned by a prohibited party.

Officer, Director, 10% or more share holder, or highly compensated employee (highest paid).

Partner of Related Party.

Make it profitable…

Wiggle Room

The IRS allows your The IRS allows your IRAIRA to sell to and buy from to sell to and buy from brothers, sisters, aunts, uncles, cousins, nieces, brothers, sisters, aunts, uncles, cousins, nieces, nephews, and step Relatives.nephews, and step Relatives.

IRS Ruling 2004-8: In a IRS Ruling 2004-8: In a Roth IRARoth IRA, brother and , brother and sister are considered a Prohibited Party, so you sister are considered a Prohibited Party, so you cannot sell to or buy from them in your cannot sell to or buy from them in your Roth IRARoth IRA..

Real Estate is the “Key”

Rules are specific to real estate

Must be Real Estate Operating Company if the Retirement Plan and IRA Owner own more than 25% of the LLC/LP. See 29 CFR Section 2510.3-101.

Cannot have 100% control of LLC/LP.

If not Real Estate or you want to take a salary for managing the company, you, your SDRPs and Prohibited Parties Cannot own 50% or more of the company.

The Right Structure for You

Option 1

Tax QualifiedPlan$$

Self DirectedRetirement

Plan$$

Raw Land

$$ LOANSecured byReal Estate

- No Debt- No LLC/LP- No Partners- Direct Investment in name of IRA

Make it profitable…

For Illustration Purposes OnlyMay not be reproduced without theExpress written permission of KKO Lawyers©

Createor Transfer

Option 2

Rental Property(Income Producing)

Non-RecourseLoan

MortgageCompany

- Non-Recourse Debt- No Personal Guaranty- No Sweat Equity- No LLC/LP- No Partners- Direct Investment in name of IRA

The Right Structure for You

Make it profitable…

Tax QualifiedPlan$$

Self DirectedRetirement

Plan$$

For Illustration Purposes OnlyMay not be reproduced without theExpress written permission of KKO Lawyers©

Createor Transfer

Option 3

- Non-Recourse Debt- Single Member LLC- No Personal Guaranty- No Sweat Equity- No Partners- Direct Investment in name of IRA

SingleMember

LLC

The Right Structure for You

Make it profitable…

Raw Land

$$ LOANSecured byReal Estate

Tax QualifiedPlan$$

Self DirectedRetirement

Plan$$

For Illustration Purposes OnlyMay not be reproduced without theExpress written permission of KKO Lawyers©

Createor Transfer

Real EstateOperating Company

Option 4

Rental Property(Income Producing)

Non-RecourseLoan

MortgageCompany

- Non-Recourse Debt- Single Member LLC- No Personal Guaranty- No Sweat Equity- No Partners- Direct Investment in name of IRA

SingleMember

LLC

The Right Structure for You

Make it profitable…

Tax QualifiedPlan$$

Self DirectedRetirement

Plan$$

For Illustration Purposes OnlyMay not be reproduced without theExpress written permission of KKO Lawyers©

Createor Transfer

Real EstateOperating Company

Option 5

50%

Limited Liability Co.

orLimited Php.

IRAOwner

40-45%

MortgageCompany

Guarantor

Rental Properties

3rd PartyOwner

5-10%- Recourse Debt - YES- Partners -YES- LLC/LP- Yes

The Right Structure for You

Make it profitable…

Tax QualifiedPlan$$

Self DirectedRetirement

Plan$$

For Illustration Purposes OnlyMay not be reproduced without theExpress written permission of KKO Lawyers©

Createor Transfer

Real EstateOperating Company

Self Directed IRA Issues

Prohibited Transactions Transactions with Prohibited parties Use of Property Compensation of IRA ownerUnrelated Business Taxable Income (“UBTI”)

1. Rents, interest, dividends and capital gains exempt.

2. Watch out for development activities and non-real estate activities.

Unrelated Debt Financed Income (“UDFI”)1. Tax is paid on the portion of gains attributable to

the debt on the property. Administration Duties Annual report/valuation to Custodian Bookkeeping and tax return

Self-Directed Plan Compliance Issues

• Must be Real Estate Operating Company if the Retirement Plan and IRA Owner own more than 25% of the LLC/LP See 29 CFR Section 2510.3-101

• Can’t have 100% control of LLC/LP

• Prohibited Transactions Transactions with Prohibited parties Use of Property Compensation of IRA owner

• Administration duties Annual report/valuation to Custodian Bookkeeping and tax return

BEWARE!!This is not a comprehensivelist, and also requiresa properly drafted Company document!!

Self-Directing Your Retirement Plan for Real Estate: What Can I Really Do?

For more information, please contact us at:

KYLER KOHLER & OSTERMILLER, LLPTel: 435.586.9366 Fax: 435.586.9491

www.kkolawyers.com