1. “Investing with Your Self-Directed Retirement Plan: What Can I Really Do?” Mathew Sorensen, Attorney at Law www.kkolawyers.com Cedar City ~ Las Vegas ~ Beverly Hills ~ Salt Lake City Telephone 435.586.9366 / Facsimile 435.586.9491 © Kyler Kohler & Ostermiller, LLP 2007

2. 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

3. What is a self directed retirement account? Can I self direct? A self directed retirement account is an account where you can select any investment allowed by law for your retirement account. (e.g. real estate, LLC purchase, options, etc.) In order to self direct, you must have a retirement plan custodian who allows you to purchase any investment allowable by law. Experienced Self Directed Custodian Companies include: Pensco Trust, www.penscotrust.com, 1-800-969-4472 American Pension Services, www.aps-utah.com, 801-871-0667www.aps-utah.com Set up a new account or roll over an existing account.

4. 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.

5. Make it profitable… Wiggle Room  The IRS allows your IRA 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 Roth IRA, 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 Roth IRA. cannot sell to or buy from them in your Roth IRA.

6. 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.

7. The Right Structure for You Option 1 Tax Qualified Plan $$ Self Directed Retirement Plan $$ Raw Land $$ LOAN Secured by Real Estate - No Debt - No LLC/LP - No Partners - Direct Investment in name of IRA Make it profitable… For Illustration Purposes Only May not be reproduced without the Express written permission of KKO Lawyers © Create or Transfer

8. Option 2 Rental Property (Income Producing) Non-Recourse Loan Mortgage Company - 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 Qualified Plan $$ Self Directed Retirement Plan $$ For Illustration Purposes Only May not be reproduced without the Express written permission of KKO Lawyers © Create or Transfer

9. Option 3 - Non-Recourse Debt - Single Member LLC - No Personal Guaranty - No Sweat Equity - No Partners - Direct Investment in name of IRA Single Member LLC The Right Structure for You Make it profitable… Raw Land $$ LOAN Secured by Real Estate Tax Qualified Plan $$ Self Directed Retirement Plan $$ For Illustration Purposes Only May not be reproduced without the Express written permission of KKO Lawyers © Create or Transfer Real Estate Operating Company

10. Option 4 Rental Property (Income Producing) Non-Recourse Loan Mortgage Company - Non-Recourse Debt - Single Member LLC - No Personal Guaranty - No Sweat Equity - No Partners - Direct Investment in name of IRA Single Member LLC The Right Structure for You Make it profitable… Tax Qualified Plan $$ Self Directed Retirement Plan $$ For Illustration Purposes Only May not be reproduced without the Express written permission of KKO Lawyers © Create or Transfer Real Estate Operating Company

11. Option 5 50% Limited Liability Co. or Limited Php. IRA Owner 40-45% Mortgage Company Guarantor Rental Properties 3 rd Party Owner 5-10% - Recourse Debt - YES - Partners -YES - LLC/LP- Yes The Right Structure for You Make it profitable… Tax Qualified Plan $$ Self Directed Retirement Plan $$ For Illustration Purposes Only May not be reproduced without the Express written permission of KKO Lawyers © Create or Transfer Real Estate Operating Company

12. Operational Business Ownership with Retirement Plan Funds Instead of Investment Benefits 1.Retirement funds go into c-corp which can purchase an existing business or franchise and retirement plan owner can receive a salary. Tax Qualified Plan $$ Specially designed Self Directed 401(k) Create or Transfer C-Corp Operational Business. (e.g. franchise, small business) Retirement Plan Owner Salary$$ Disadvantages 1.C-Corp tax game. 2.Retirement Plan has control of most stock. 3.Doesn’t work well for investments.

13. Self Directed IRA Issues Prohibited Transactions Transactions with Prohibited parties Use of Property Compensation of IRA owner Unrelated 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

14. 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 comprehensive list, and also requires a properly drafted Company document!! Self-Directing Your Retirement Plan for Real Estate: What Can I Really Do?

15. For more information, please contact me at: Mathew Sorensen, Attorney at Law KYLER KOHLER & OSTERMILLER, LLP Tel: 435.586.9366 Fax: 435.586.9491 www.kkolawyers.com mat@kkolawyers.com www.kkolawyers.com