With your Self-Directed IRA, you can invest in real estate, tax liens, personal loans, private businesses and more. For increased flexibility and diversification needed to help create resources for the future, some Self-Directed IRA account owners choose to employ a Limited Liability Company (LLC) IRA structure in an effort to help reduce fees, paperwork, and processing delays. Creating an IRA LLC is a process where the Self-directed IRA invests in a newly formed LLC. The IRA account holder directs his/her IRA custodian to invest into an LLC. The account holder, as manager, can execute transactions on the LLC level without involving the IRA custodian, thus reducing fees and eliminating transactional fees and delays.
In most cases, the LLC is owned 100% by the self-directed IRA, and the profits of the LLC pass through to the IRA with nearly identical tax favorable treatment. Some claim that this IRA LLC strategy has been legitimized through a tax court case: Swanson v. Commissioner, 106 T.C. 76 (1996). Some refer to this structure as having "checkbook control" because the IRA account holder often has sole signing authority for the LLC and its bank accounts. A Self-directed IRA in conjunction with an IRA LLC can potentially make the investment process as convenient as writing a check.
A Self-Directed IRA LLC account structure enables you to:
- Use the same IRA LLC to purchase a single or multiple nontraditional (real estate, foreign properties, mortgage notes, etc.) and traditional (stocks, bonds, etc.) assets.
- Purchase foreclosed properties and tax liens, or make personal loans by simply writing a check.
- Buy and sell domestic, foreign, commercial, residential, and rental properties as Self-directed IRA investments while realizing the profits tax-deferred in your retirement account.
There are many benefits to using the LLC as a vehicle for your Self-directed investments. These can include:
- Checkbook Control – The IRA LLC allows you to make timely investments into assets like tax liens and foreclosures that otherwise would be more difficult through a custodian.
- Reduced Custodial Fees – Regardless of how much money you have, or the number of investments you make, funding the LLC is typically a single transaction.
- Portfolio Diversification – You can purchase traditional investments like stocks, bonds and mutual funds in addition to real estate, tax liens, franchise or small businesses through the IRA LLC.
- Multiple Investors – when properly structured, an IRA LLC may offer additional buying power and opportunities by combining investment capital from many sources including other IRA account holders, cash and non-recourse loans.
When you find a suitable investment, you simply write a check from your IRA LLC bank account to purchase the investment product in the LLC's name. There is no need to obtain approvals from your custodian, so there is no delay in awaiting approval, and there are no review fees and transaction fees to pay.
It is critical that you seek and receive advice from qualified tax, legal, and financial advisors regarding any questions you have, or actions you plan to take regarding creation of an IRA LLC. Specific procedures should be followed in creating the LLC operating agreement and maintaining the proper structure to maximize the tax benefits of the IRA LLC. |
