Posted about 5 years ago

Self-Directed IRA LLC Requirements

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Unlike a self-directed Solo 401k that can be established with checkbook control from the onset, a self directed LLC IRA is commonly used to gain checkbook control over an IRA.

Background:

A self-directed IRA may be invested (called units or membership interest) in a limited liability company provided the purchase does not run afoul with the exclusive benefit rule or the IRA prohibited transaction regulations. The same prohibited transaction rules that apply to self-directed IRA apply to an IRA LLC (also known as a checkbook IRA).

An  LLC  where the sole member is a self-directed IRA is deemed a single member LLC (Self Directed IRA LLC) for tax purposes which means the LLC is not required to file a federal tax return. The self-directed IRA is only required to file a tax return (Form 990T) if taxes are due (e.g. UDFI or UBIT).

Why an IRA LLC /Checkbook IRA

While an IRA LLC is not required in order to invest in real  estate, many IRA owners find it a good idea for the following reasons:

Reason one: While IRAs are afforded bankruptcy protection under federal law, not all states afford IRAs creditor protections. As a result, an IRA is often invested in an LLC for protection from  creditors.

Reason two: Reduce IRA custodian fees since investments are made through the IRA owned LLC. 

Reason three: Reduce IRA custodian involvement since the IRA owner is the manager of the IRA owned LLC.

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Keys to a Compliant Self Directed IRA LLC Operating Agreement

Require the IRA LLC facilitator to include the following pertinent items in the LLC operating  agreement and to leave out terms to the contrary.  

  • No compensation may be paid to the manager of the IRA LLC if the manager is the IRA owner or a disqualified party.
  • If the IRA/LLC manager is the IRA owner or a disqualified party or the manager, include language that specifies the manager may not receive compensation for managing the LLC.
  • Include language regarding UBIT and UDFI triggers.
  • Include language regarding disallowed investments.
  • Include language regarding what happens in the event of death of IRA owner.

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To learn more about the IRA LLC CLICK HERE.



Comments (3)

  1. Tiny 1448323051 avatar mysolo401k

    Brett, Good question. No it would be prohibited because it is your IRA LLC. 


  2. No avatar

    Mark. Can I as a real estate agent get paid, through my broker, a commission if I sell a property that is owned by my LLC IRA?


  3. Tiny 1448323051 avatar mysolo401k

    A solo 401k may also invest in an LLC. While checkbook control can be obtained by simply opening the solo 401k, some investors like to invest the solo 401k in an LLC. Click here to learn more about investing a solo 401k in an LLC. 



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