Investing a self-directed IRA LLC in real estate is similar to investing a self-directed IRA in real estate in that the same IRS prohibited transaction and IRA rules apply.
That being said, here is a helpful procedure for investing an IRA LLC in real estate.
- First open a self-directed IRA with a custodian that will hold the IRA funded LLC on their books, as the IRA custodian will need to report the value of the IRA owned LLC on Form 5498 and only the IRA custodian can perform this IRS required function.
- Open the LLC using the services of an IRA LLC provider such as My Solo 401k Financial.
- Fund the self-directed IRA by transferring a former employer plan such as a 401k, 403b, TSP, 457b, and defined benefit plan, as well as other IRAs.
- Setup the LLC bank account and direct the self-directed IRA custodian to send the funds to the newly funded self-directed IRA LLC.
- Once you identify that property for purchase, make the offer in the name of the newly funded IRA LLC and make the earnest deposit by wiring funds from the LLC bank account to the escrow company.
- Finish investing the IRA LLC in the new property by wiring the rest of the funds from the IRA LLC bank account directly to the title company.
- After the purchase and going forward, pay property expenses (insurance, property taxes, repairs, maintenance, etc.) using IRA LLC funds, and deposit all rental income and proceeds from the sale of the property into the LLC bank account.
Self-Directed IRA LLC Real Estate Investment FAQs:
In-Kind IRA LLC Distribution QUESTION:
You would need to transfer ownership of the LLC to the self-directed IRA “free and clear” (including re titling the property in the name of the self-directed IRA custodian for the benefit of your IRA) and then take an in-kind distribution from the IRA which would be a taxable distribution (based on the fair market value of the property and a second re titling).
Travel Expenses QUESTION:
No. While certain expenses (e.g., property taxes, cost for repairs, etc.) associated with the the IRA LLC house/building investment must be paid with funds from the IRA LLC bank account, travel expenses and meals are not allowed to be paid with IRA LLC funds.