Posted by Tony Colella on July 13, 2005 at 08:20:51:
Many of us here have used IRA’s to invest in mobile homes for years. Yes, the investors typically rolled a 401(k) or traditional IRA into a self - directed IRA but it was not so much a concern about UBIT but rather the restriction of the plan or IRA admistrators that did not allow the mobile home or real estate type investment.
The few companies that do allow this became the trustee for these self directed IRA’s and it was business as usual.
Perhaps your 401k admistrator is the issue and not the UBIT. Even if you convinced them of the legality of the mobile home investing, they may still not allow it because they are not set up for it, not versed in it and not comfortable with their lack of knowledge in it.
Hello,
I’ve been reading the IRS circulars on UBIT, and have got a pretty good grip on what constitutes UBIT. I can understand their examples. For instance, a church, who by definition has as their primary “exempt” purpose, the evangelical promotion of a particular religion. If this same church operates a used car lot “on the side” for its profitable income stream, the car lot would be considered a UBIT, since the car lot would not be considered a function of the exempt evangelical nature of the main business.
However, in the case of an exempt 401(k)plan, I would argue that the main function of a 401(k) “business” is to generate income, and grow in size; therefore, any legal activity that helps to accomplish that purpose (unless it is specifically denied) should naturally be considered NON-UBIT in nature. If it is non-UBIT, then there should be no taxable event with regards to using ‘debt-financed property’ in pursuit of this goal.
By reading just the IRS publications, I feel I can easily defend this argument. However, I know that the actual IRS code, along with case law, is the final word on this subject.
What are your thoughts on this, and how can I resolve this question?
Thanks!
patsears
p.s. I am mainly considering this question with regards to investing in chattel mobile homes in my Individual 401(k) plan