Why Do You Need an LLC For a Self Directed IRA?
An IRA LLC has become the go-to investment vehicle for self directed IRA investors who prioritize “checkbook control”. An LLC structure may also be necessary when investing in real estate foreclosures, tax liens and foreign or domestic private equity assets.
An IRA/LLC business bank account allows for greater opportunities, control and savings by enabling the owner/manager to write checks directly from it for purchases made without custodian approval or review fees. This provides more opportunities, control and savings.
Limited Liability Protection
Self-directed retirement accounts such as LLC IRAs are becoming increasingly popular because of their flexible nature, offering greater access to alternative investments like real estate, private equity investments, crowdfunding projects and private loans. Investment in these assets may provide substantial long-term returns.
The owner and manager of an LLC both possess checkbook control of funds, eliminating custodian involvement from investment decisions. This is especially convenient when working on joint projects as it enables check writing directly from their LLC bank account.
However, in order to ensure the IRA LLC adheres to IRS guidelines and does not engage in prohibited transactions, specialized managing operating agreements must be drawn up. Therefore, it is crucial that qualified expert advisors help create your IRA LLC successfully so you can reap its benefits without experiencing future complications.
Asset Protection
IRA LLC structures have quickly gained in popularity among SDIRA investors due to their ability to both invest in real estate while simultaneously saving on transaction fees by maintaining more recordkeeping internally and their pass-through entity status; which allows income and gains to flow back tax-free back into your self directed IRA account.
LLC owners are protected from personal liability unless a court can “pierce the corporate veil,” which is relatively uncommon. Unfortunately, however, improper management of an LLC could compromise this asset protection, including improper bank accounts management (using separate bank accounts for each division of an LLC or record keeping practices that eschew regularity or insurance requirements) or conducting prohibited transactions with disqualified individuals or entities.
An IRA LLC provides stronger asset and creditor protection than investing directly with retirement accounts, including protecting both its owner, custodian, and assets from claims or liabilities that might arise from investments held within it.
Taxes
Over the past 25 years, an increasing number of Self-Directed IRA investors have chosen an LLC owned and managed entirely by their retirement account to make nontraditional investments. Since IRS rules do not prohibit investing in such assets, using an LLC allows investors to avoid paying extra filing fees when investing in difficult-to-value or illiquid assets.
LLC structures can facilitate quicker investment transactions by allowing an IRA to write checks directly to asset sellers instead of going through its custodian. This feature is particularly advantageous when investing in real estate as the sale and purchase contracts must be executed and signed before properties can be bought or sold. Furthermore, an IRA/LLC structure may help lower transaction fees when holding multiple assets simultaneously.
Management
Many IRA investors are seeking greater control of their retirement investments. Although investing in alternative assets through traditional self-directed IRA custodians is possible, the process can often be lengthy and expensive due to compliance fees charged by custodians. One solution for achieving greater control is setting up a self-directed IRA LLC or “checkbook IRA”. This strategy allows an IRA to own an LLC for special purpose investing and act as its manager, giving direct control of all investment activities from within their IRA account.
An IRA/LLC can invest in all forms of real estate, from residential and commercial real estate, raw land ranging from single-family houses and building lots, contracts for sale or lease options as well as contracts for sale/lease back options. However, to ensure all transactions follow proper protocol to avoid prohibited transactions; experienced investment attorneys provide this essential service.
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