Many are amazed to learn that their IRA can invest in alternative investments like real estate. One popular means of doing this is with a Self-Directed IRA LLC which can be used for multiple types of investments, but is most advantageous when investing in real estate.
An IRA LLC can be utilized for numerous investments including residential, commercial and raw land holdings from single family to multi-family homes and building lots as well as contracts for sale or lease options.
What is an LLC?
An LLC is a type of business structure which offers limited liability protection to its owners, making them suitable for investing in alternative investments such as real estate or private equity while managing them as well.
Partnering multiple IRAs into one LLC for investing purposes is possible, though careful consideration must be given due to IRS restrictions on prohibited transactions dictating who your IRA can and cannot transact with.1
Self-Directed IRA (SDIRA) custodians offer their customers the ability to form a single-member LLC owned 100% by their IRA with them serving as manager. In this way, they have complete checkbook control over their assets as they use the LLC business checking account to pay expenses and make investments.
IRA Resources can assist in setting up your IRA LLC by completing our new account application and sending us valid government-issued photo ID via fax or email. Additionally, we can help locate an LLC registered agent in the state where your LLC will reside; registration in each state varies; some require both an initial fee as well as annual expenses to keep operating smoothly.
How do I set up an LLC?
An LLC is an increasingly popular investment strategy among Self-Directed Individual Retirement Account (SDIRA) holders looking for alternative investments, including real estate, promissory notes and private equity. Using an IRA LLC offers several advantages including limited liability protection, pass-through income streams and increased diversification options.
An IRA LLC allows SDIRA investors to gain checkbook control and reduce transaction fees by forgoing custodian approval for each purchase, but may require greater due diligence as you will be dealing directly with the asset in question.
In most instances, an IRA will own sole ownership of an LLC – this type of ownership structure is known as Single-Member LLC ownership and it is one of the most popular ways that SDIRAs invest. They then use it for investments and expenses payment through this LLC entity – profits are taxed like traditional IRA assets in terms of either deferred taxation or full tax-free treatment depending on which IRA type the owner opts for (Target Taxable or Roth).
IRS rules restrict certain transactions and situations when investing in LLCs, such as an IRA investing in an LLC owned by its owner and/or disqualified persons who already hold 50%+ ownership (which includes their spouse, ascendants and descendants). Therefore, new LLCs need to be formed so both IRAs can invest into them as founding members.
How do I invest my IRA in an LLC?
When using a Self-Directed IRA, it’s essential that investors comply with IRS rules. One effective strategy for doing so is investing into an IRA/LLC; this structure enables nontraditional assets like private companies, startups and real estate that would normally be prohibited within a Traditional IRA to be invested directly within this type of account. Instead, money is placed into a privately held LLC known as an IRA/LLC which in turn acquires these investments – this option has proven particularly popular among real estate investors as well as others investing in alternative assets with self-directed retirement accounts.
An SDIRA invested into an LLC can give investors greater checkbook control of their investments, cutting transaction fees and speeding up action to take advantage of opportunities more quickly. For instance, this strategy can enable faster action to purchase foreclosed properties and renovate them to generate tax-free income; loans on property obtained directly through an IRA LLC can save money by bypassing property management companies; then when it comes to recordkeeping and expenses payment the IRA LLC can write checks from its checking account to pay invoices instead of sending payments into custodian accounts where payments must be deposited and recorded before sending payments directly into custodian accounts where payments must be recorded before being sent into records by custodians; ultimately this powerful strategy should be discussed with an experienced financial professional for best results.