Can an IRA Be Owned by an LLC?

Can an IRA be owned by an LLC

An LLC is an increasingly popular investment choice among self-directed IRA (SDIRA) owners, but it is essential that investors understand its workings and adhere to IRS rules when considering this form of structure.

Example: If an IRA owned an LLC that paid salaries out, this would violate federal tax law; thus a personalized operating agreement is essential.

Limited Liability

Smart real estate investors use limited liability companies (LLCs) to protect themselves and limit liability. An LLC establishes an additional layer of protection between your personal assets and your investments within an IRA account.

However, an LLC cannot protect your IRA from the liabilities that result from your actions or investments. For example, if you purchase property that is poorly maintained and one of your visitors or tenants becomes injured as a result, they could sue your IRA for compensation; this could potentially lead to the loss of all its investments as well as potentially all your personal assets.

Self-directed IRA LLCs may help alleviate these concerns. An LLC is a state-sanctioned business entity designed to effectively separate IRA assets from your own personal finances. They don’t typically require complex requirements like annual meetings or minutes – and you could avoid transaction fees by bypassing your custodian altogether when transacting transactions through it. Nevertheless, an LLC must be set up and written so as to comply with prohibited transaction rules when executed transactions take place through it.

Tax-Advantaged

An LLC is an appealing option for Self-Directed Individual Retirement Account (SDIRA) owners due to its tax advantages, providing access to investments not usually available via custodianship – such as real estate, tax lien & deed auctions, REO auctions, foreign assets and private equity investments.

An LLC structure can also help you avoid prohibited transactions; however, if not handled carefully it could create tax issues for your IRA. For instance, investing in real estate via an LLC could become tax problematic as the IRS could view this activity as producing Unrelated Business Taxable Income (UBTI).

Establishing an IRA LLC requires legal advice to ensure it will not engage in prohibited transactions, which an experienced attorney can implement into its operating agreement to minimize. Furthermore, funds should never be mixed between your IRA and the LLC.

Flexibility

An LLC can help provide more privacy and confidentiality than would be available from an IRA account alone. For instance, rental checks made out to the LLC rather than directly to its owner can make for a less public process when changing property titles or documents.

An IRA LLC can also help reduce transaction fees when handling multiple assets. This strategy is popular among self-directed IRA (SDIRA) holders and can help reduce costs when investing in alternative investments such as real estate, LLC/LP interests, notes and private company stock/VC/PE funds.

However, it should be remembered that an IRA LLC does not protect IRA owners from prohibited transaction regulations and it is wise to consult legal advice to create parameters in your LLC operating agreement to safeguard against potential issues.

Checkbook Control

Checkbook control IRAs allow you to invest in any investment permitted by the IRS, such as private company shares, precious metals, real estate tax liens and trust deeds – these investments cannot be found with traditional custodians of an IRA account.

This option will require more paperwork and legal work as it requires setting up a single-member LLC for your IRA. Working with legal counsel who are familiar with state laws regulating these types of entities as well as IRA rules is vital for successfully setting parameters into an LLC operating agreement so that disqualified parties cannot conduct prohibited transactions through your IRA.

Checkbook-controlled IRAs provide an effective solution for purchasing property or investing, since all purchases and revenue (rental payments) go through your LLC bank account instead of multiple investors signing closing documents – creating more privacy while saving time on real estate transactions.


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