Who Owns the LLC in a Self-Directed IRA?

Self-directed IRAs (SDIRAs) allow investors to diversify their investment portfolio by choosing assets such as real estate (both residential and commercial), private equity, precious metals and tax liens – subject to IRS regulations preventing prohibited transactions with disqualified parties.

One way of doing so is forming an LLC with your IRA, providing benefits like confidentiality and privacy.

Ownership

LLC-structured investments offer IRA owners an ideal way to diversify their portfolios, access alternative assets and reduce transaction fees. A Self-Directed IRA LLC is often used for real estate investments but also allows access to other forms of investments like stocks or bonds. With “checkbook control” capabilities provided by this investment structure, a Self-Directed IRA owner has access to their IRA bank account so they can write checks directly out from it when making purchases or paying expenses.

IRA accounts can invest in LLCs, with certain restrictions placed upon the types of investments allowed. You cannot make real estate purchases directly in your name and should avoid purchasing property from disqualified persons like spouses, children, parents and grandparents. Furthermore, life insurance policies cannot be purchased along with collectibles such as gems and rare coins with insufficient purity (like gold/silver coins or bullion), collectibles/gems as well as alcohol beverages from LLCs using an IRA account as investments. Also to make investments you will require an Employer Identification Number (EIN) number as well as draft an operating agreement before investing any investments are made possible.

Management

An LLC created and utilized by retirement investors as an investment vehicle can bring many advantages, such as limited liability protection and pass-thru taxation; further diversifying investments. But to remain compliant with IRS requirements when creating and managing their LLCs.

An IRA LLC must not participate in prohibited transactions or make loans to individuals who are disqualified from doing business with your IRA, and file regular tax forms like Form 990-T and state taxes such as Unrelated Business Income Tax.

An operating agreement, signed by all members, serves to document the structure, rules and policies of an LLC. This document is especially important when an IRA LLC will take ownership positions in closely held family businesses or farms as well as investment property (such as apartment buildings or raw land). When investing with multiple owners, an operating agreement helps ensure everyone understands their responsibilities.

Taxes

An LLC is an excellent choice for an SDIRA because it gives greater investment control and ensures greater privacy. By choosing this form of ownership, your name and IRA account number won’t appear anywhere on property-related documents compared with owning directly in your own name.

LLCs can be used for various forms of investments, including real estate and operating businesses. As long as you abide by IRS rules pertaining to prohibited transactions and disqualified persons, any income generated from these types of investments will flow back into your self-directed IRA either tax-deferred or tax-free depending on their nature.

However, if an LLC accrues income that falls into either of two categories – unrelated business income (UBI) or debt-financed income (UDFI), they must file Form 990-T. This tax often arises in real estate investments where leveraged debt financing is utilized when purchasing properties; or when an LLC invests in an enterprise which sells products or services directly to consumers.

Investments

As part of your self-directed IRA LLC investment portfolio, alternative assets such as real estate, LLC/LP interests, private company stock and notes may be allowed – however it is essential that you comply with any rules related to prohibited transactions that could affect both your investments and tax benefits.

An SDIRA LLC can also reduce transaction fees when investing in properties or investments jointly with others, and give their owner control of their checkbook so investments can be completed more rapidly without waiting for the custodian to issue checks on behalf of the LLC.

Start off by consulting a financial advisor. Use SmartAsset’s free tool to quickly locate a vetted advisor in your area, interview potential advisor matches at no cost and assess if they can help you meet your retirement goals. Also learn about SDIRA benefits and how you can set one up.