An LLC can serve as a vehicle for IRA investors to purchase real estate through. When doing so, however, it’s essential that funds from both accounts don’t become intertwined, which could breach prohibited transaction regulations and cause irreparable harm.
Self-Directed IRAs make this point especially clear, as the owner will have checkbook control of an LLC owned by his/her IRA.
Taxes
An LLC is an ideal vehicle for investing in real estate and other assets requiring frequent transactions, such as rental properties. Your IRA funds can even be invested directly into its business checking account without risk of mixing with personal assets.
The LLC may be managed either by its IRA owner or another non-disqualified individual; however, an IRA owner cannot receive any salary or other form of compensation from managing it. Furthermore, should property manager services be required they must be paid from within their IRA checking account.
An IRA LLC can form partnerships with other entities or individuals to invest in valuable assets quickly. It’s an efficient way of raising capital quickly and launching investment projects quickly – just be sure to create an operating agreement that outlines all governing structure, rules, policies and restrictions of the arrangement as well as consulting a tax or legal advisor in order to avoid IRA prohibited transactions.
Liability
An LLC is a legal entity that provides limited liability protection for business owners. By protecting assets of a company from personal claims in case of bankruptcy, an LLC makes for ideal investing in private businesses or real estate investments. However, it must be noted that an LLC cannot invest in disqualified people such as themselves (IRA owner), their spouses/children/parents (10% partners+ partners or any company they manage).
IRAs may partner with individuals or entities for investments, though it’s essential that you understand the tax implications associated with doing so as partnerships could violate IRS prohibited transaction rules.
Establishing an IRA LLC may be time-consuming and expensive, depending on which state it’s formed in. Some states require an annual registered agent fee while filing fees may also be associated with it – yet its benefits far outweigh these expenses.
Partnerships
Simplified Employee Pension (SEP) IRAs offer small business owners and self-employed individuals an alternative way to defer income through their company, unlike traditional or Roth IRAs that must be funded with personal earnings.
An IRA LLC can be utilized for real estate investments where its owner wants more active participation, saving both time and money as it eliminates the need for a custodian to handle all investment transactions.
Legal professionals that understand state laws governing these structures and IRA rules and regulations should be employed when creating or restructuring LLCs and IRAs, so as to avoid costly mistakes down the line. Such professionals can assist with setting parameters into an LLC’s operating agreement which prevent it from engaging in prohibited transactions; additionally they will review documents to ensure no personal funds have been contributed and that only qualified investors invested. Having legal advice that understands state laws regarding such structures will allow for optimal decisions and help prevent costly errors from recurring.
Investments
An LLC allows an IRA account holder to make alternative investments such as private businesses and real estate through limited liability protection. Furthermore, this structure makes an ideal Self-Directed IRA vehicle as it gives investors flexibility when investing in nontraditional assets like real estate, tax liens and precious metals.
An LLC IRA can be opened with any brokerage firm accepting Self-Directed IRAs; however, you should choose one familiar with state LLC requirements and IRA rules such as Schwab. Schwab can assist in creating single member LLCs as well as opening investment accounts in their name.
Your LLC and personal accounts should never mix funds, as doing so could violate IRS rules and make your IRA ineligible for tax benefits. In addition, collectibles, life insurance policies or gold or silver coins with insufficient purity should not be invested in.
