Homestead Owned By IRA
Is your homestead protected if title is held in a Roth IRA? That is a question asked by a recent caller. I have not seen a case on the issue directly. I believe the answer will be "yes" if the beneficiary of the IRA lives on the property.
The Constitution limits homestead protection to "natural persons." A property owned by someone's corporation or family partnership probably would not be homestead protected. Yet, many Florida court decisions have held that a person claiming homestead need not hold legal title to the property so long as he has a beneficial interest. Several Florida courts have held that ownership through a living trust- where the debtor is settlor and beneficiary- qualifies as ownership by a natural person.
I think a Roth IRA is similar to a living trust because the person who sets up and funds the Roth is usually the primary beneficiary. Like a living trust, a Roth IRA has contingent beneficiaries upon the settlor/owner's death.
Roth IRAs allow people to invest after tax dollars in assets and avoid future gain on the sale of the asset. I would like to know why a person would title his homestead in his Roth IRA inasmuch as federal tax law gives generous tax exemption upon the sale of homestead properties anyway. It seems that only a person sure of substantial home appreciation would title their residence in a Roth; but if they do, in my opinion the house would qualify for Constitutional homestead protection in addition to the statutory protection afforded to IRAs and other qualified plans.
posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida
The issue of homestead retention is moot in this scenario. An IRA owner is not entitled to benefit from IRA assets so placing the property into the IRA and/or continuing to live in the property would constitute a prohibited transaction under IRC sec. 4975, resulting in immediate disqualification of the IRA (Roth or otherwise). The same applies to any self-directed ERISA plans. The property could never qualify as a homestead since the IRA owner/beneficiary cannot occupy it.