Does My Self-Directed IRA Need an EIN?

Self-directed retirement accounts offer investors more investment flexibility. Investors can use these accounts to invest in alternative assets like real estate, private equity funds, precious metals and even cryptocurrency.

As these investments can often generate UBTI or UDFFI, the IRA custodian must file Form 990-T to report this income and pay taxes on it. For this filing process, an EIN must also be acquired.

What is an EIN?

An EIN (Employer Identification Number) issued by the IRS to identify businesses, estates, trusts and nonprofit organizations for tax-related purposes is similar to having a Social Security Number or Individual Taxpayer Identification Number (ITIN), as it can be used for filing taxes, opening business bank accounts and hiring employees, meeting regulatory and legal obligations and complying with regulations and compliance.

An EIN is essential for any type of entity looking to accurately report its income to the IRS and avoid confusion between personal and business assets. EINs also must be obtained before opening business bank accounts or applying for credit.

Applying online through the IRS website is by far the fastest way to get an EIN. Paper applications (SS-4 form) may take longer and approval will either come electronically or via mail from the IRS; upon approval they will both receive a confirmation letter.

How do I get an EIN for my self-directed IRA?

If your SDIRA invests in partnerships or LLCs that generate taxable income, the IRS requires these entities to issue an annual K-1 tax document. For this, a FIN/TIN/EIN must exist that is distinct from your IRA’s social security number.

Some states and localities also mandate an EIN for certain businesses and investments; having one can help avoid potential compliance issues in these cases.

Corrigan Krause’s team of self-directed retirement tax experts stay informed on these changes, so if your SDIRA invests through a partnership that generates Unrelated Business Taxable Income (UBTI) or Unrelated Domestic Financial Institution Income (UDFI), it must be reported on Form 1065 Schedule K1 line 20 code AH for tax years post-2022. In addition, checkbook control IRAs that use single member LLCs must acquire an EIN so they can open bank accounts and file taxes; our self-directed retirement tax experts keep up-to-date on these changes so we can assist with acquiring an EIN that fits with your unique structure if needed. Corrigan Krause can assist with this task!

Do I need to get an EIN for my self-directed IRA?

An SDIRA gives you the freedom to invest in alternative assets such as real estate, private mortgages, company stock from oil and gas limited partnerships, precious metals, horses and livestock as well as digital assets. SDIRAs may even hold debt-based financial instruments such as personal and business loans.

The IRS forbids certain investments from SDIRAs, such as life insurance policies and collectibles such as artwork, rugs, antiques, baseball cards, stamps and coins as well as tangible personal property that is difficult to value; however, other than this list of prohibited assets an SDIRA may invest in virtually all investments available to it.

If a self-directed IRA invests in an entity that falls under Unrelated Business Income Tax (UBIT) or Unrelated Debt Financing Income (UDFI) rules, they must file Form 990-T in order to report this income. In order to do this accurately and transparently, each business should possess their own EIN that differs from that of their custodian IRA in order to ensure proper reporting adherence from both entities.

Why do I need an EIN for my self-directed IRA?

Self-directed IRAs give investors greater flexibility and freedom when it comes to diversifying their retirement savings beyond stocks, bonds, and mutual funds. Investors can invest in alternative assets such as real estate investments, private mortgages, private company stock, precious metals and cryptocurrencies; however these investments may be difficult or even impossible to liquidate as needed and could create concentration of retirement assets that don’t align with your goals or risk tolerance.

IRA custodians typically utilize their own EIN as the reporting entity for your account, however in certain circumstances you may be asked to fill out forms where EIN information for your IRA must be supplied – this is when using that of your custodian would be most suitable.

The IRS only taxes IRAs that generate Unrelated Business Taxable Income (UBTI) or Unrelated Domestic Foreign Financial Institutions (UDFI). UBTI refers to income generated by non-publicly traded companies or IRAs using debt financing to acquire an asset such as purchasing investment real estate, while UDFI refers to earnings earned from investing in franchise businesses, debt-financed partnerships or corporations that generate Unrelated Domestic Foreign Financial Institution income.


Comments are closed here.