Can an IRA Go Into an LLC?
When investors invest their IRA funds in an LLC, its governing document establishes its structure and rules of investment. It will also list owners with their ownership percentages.
An LLC IRA can be an ideal solution for active investments such as rental real estate. An IRA LLC allows more control over your investments without waiting on custodian review processes.
Limited Liability
Limited Liability Companies (LLCs) are an increasingly popular investment structure for Self-Directed IRA owners looking for greater investment options. LLCs are most often used as real estate or private note investments; however, it can also be used for closely held companies and VC/PE funds. When using an LLC as part of an IRA plan, prohibited transaction rules must be considered to ensure no benefit accrues that could constitute self-dealing activities are avoided.
An IRA cannot invest in an LLC owned by certain “disqualified persons”, including its own owner or other “disqualified individuals”, that they already own 50% or more. Furthermore, loans cannot be provided to LLCs owned by disqualified individuals. Due to complex rules governing this issue that constantly change it is best advised that you work with an experienced advisor when investing from your IRA.
Taxes
LLCs are becoming increasingly popular among owners of self-directed IRAs due to the wide array of alternative investments they can invest in; it’s therefore vital that IRA owners understand both the tax implications and prohibited transaction rules associated with an LLC structure.
An IRA owner must also ensure that any LLC owned by their IRA complies with IRS regulations regarding payment of salaries. A 2004 U.S. Tax Court case known as Ellis v. Commissioner upheld a ruling that an LLC owned by his IRA cannot pay him a salary while serving as manager.
For an IRA investing in real estate, an LLC is usually the ideal ownership vehicle. An LLC protects against real property taxes and expenses associated with the property while simplifying processes for paying expenses such as insurance and mortgage premiums.
Investments
An LLC allows investors to make alternative investments that would normally be prohibited from traditional IRAs, including real estate, precious metals and private equity. Furthermore, LLCs can invest in business ventures by purchasing shares of an established firm or lending capital to startups.
An LLC can also invest in debt-financed real estate or invest in properties financed with non-recourse loans; however, an IRA owner must first ensure their LLC has both an LEI (Legal Entity Identifier) and TIN number in place.
An LLC can save both time and money when buying real estate investments through an IRA, by eliminating the back-and-forth approval of expenses or contracts with their custodian. Furthermore, using an LLC reduces risk associated with commingling funds that could lead to disqualification of tax-advantaged status of an IRA and gives more control and privacy over their retirement funds. It is an ideal option for investors seeking greater control and privacy with their retirement funds.
Administration
With an LLC, you’ll gain more checkbook control and can complete investments more quickly – which can be especially helpful with active investments such as real estate that involve multiple transactions with complex maintenance needs.
An LLC provides an ideal solution for investments subject to prohibited transactions, such as those conducted with disqualified individuals or entities. Therefore, legal advice is vital when creating the operating agreement of an LLC in order to prevent prohibited transactions from taking place.
To establish a Self-Directed IRA LLC, first establish it with a state-approved provider. After it’s in place, use it to invest in alternative assets like real estate, tax liens, private businesses and precious metals without incurring transaction fees from an IRA custodian and cut down maintenance costs with hands-on management of your own IRA account.
Comments are closed here.