An individual retirement arrangement (IRA) is a custodial account used to hold investments for an individual’s retirement.
After the passage of the Employee Retirement Income Security Act of 1974 (ERISA), IRAs were created by ERISA in 1975. Roth IRAs were created by the Taxpayer Relief Act of 1997.
IRAs are established with Insurance Companies, banks, credit unions, savings and loan associations, brokerage firms, or other organizations approved by the Internal Revenue Service (IRS).
A self-directed IRA (SDA) is an IRA that allows the IRA owner to pick the investments. Because the IRA trustee or custodian does not pick the investments, the IRA owner takes on the risk. Some of the investments that SDA owners direct their IRAs into are real estate, LLC and precious metals, to name just a few.
Commonly referred to as a Checkbook IRA or IRA LLC, when an LLC is 100% owned by an IRA or combination of IRAs, it is referred to as a Self-Directed IRA LLC. While the IRA owns the LLC through the purchase of member units, the same prohibited transaction rules applicable to the self-directed IRA apply to the IRA owned LLC.
There are many reasons the self-directed IRA LLC is popular for investing retirement funds, including the following:
Since the early 2000s the self-directed IRA owned LLC has grown in popularity as the common form of entity for placing real estate purchases, tax liens, precious metals, trust deeds, promissory notes and private placements, to name a few.
Checkbook Control over the IRA
A self-directed IRA owned LLC puts the IRA participant in control in placing the self-directed investments as the named LLC manager. The LLC investments can be processed by check or wire and are titled in the name of the LLC, not in the name of the IRA.
Reduce IRA Custodian Fees and Timely Process Investments
After investing the self-directed IRA in the LLC, as the manager start placing alternative investment purchases by writing checks or wiring funds from the LLC bank account. As a result IRA custodian processing fees and holding fees are greatly reduced and hold times are eliminated.
First, a Self-Directed IRA is created by completing and signing the IRA plan agreement provided by the IRA custodian.
Second, the former employer retirement plan or IRA funds are transferred to the new Self-Directed IRA custodian.
Third, MySolo401k.Net drafts Self-Directed IRA LLC operating agreement including specific IRA regulatory language, registers the LLC with the state and obtains EIN for the LLC from the IRS.
Fourth, MySolo401K.Net assists the LLC manager in opening the LLC bank account at his or her local bank.
Fifth, LLC investment directive along with the LLC documents are submitted to the custodian who then invests the IRA funds in the LLC by wiring the funds to the LLC bank account.
Finally, after the LLC bank account is funded, the manager of the LLC begins placing alternative investment purchases.
Starting a self-directed IRA LLC is easy and we will guide you through the entire account establishment process.
Step 1: Complete the sign-up form by clicking here.
Step 2: After we review your online application, we will e-mail you to confirm receipt of your IRA LLC request.
Step 3: After making payment, we will register the LLC with the secretary of state and obtain employer identification number for the LLC.
Step 4: We e-mail the self-directed IRA establishment forms and assist you in filling them out.
Step 5: We will assist you in filling out the IRA and/or qualified plan (e.g., former employer 401k, TSP, 403b or governmental plan) transfer-out forms.
Step 6: Mail the self-directed IRA establishment: Mail the self-directed IRA application to the new IRA custodian.
Step 7: Open the LLC bank account at your local bank.
Step 8: After the self-directed IRA has been funded, submit the IRA LLC Operating Agreement and investment forms to the new IRA custodian for funding.
Step 9: After the IRA LLC has been funded, begin placing investments by writing a check.
The LLC funding process generally takes 7 to 14 business days.
Yes former employer retirement funds and/or existing IRAs may be transferred/rolled over to a self-directed IRA and subsequently invested in the IRA LLC. We will guide you through the entire transfer process.
IMPORTANT: SIMPLE IRA funds may not be transferred to an IRA LLC until two years has passed since the SIMPLE IRA was first funded. This is a SIMPLE IRA rule. See publication 590 for more on this
Fort 2013, the maximum you can contribute to all of your traditional and Roth IRAs is the smaller of: $5,000 ($6,000 if you’re age 50 or older), or your taxable compensation for the year.
No the IRA contribution limits do not apply to transfers/rollovers from other IRAs or former employer plans such as a 401k.
It depends. You can make regular contributions to a Roth IRA after age 70 1/2, but contributions may not be made to a traditional IRA after age 70 1/2 even if you have earned income.
IMPORTANT: Transfers/Rollovers are not subject to the age 70 1/2 contribution restriction.
Yes, known as spousal IRA, you and your spouse can each make self-directed IRA contributions even if only one of you has earned income/taxable compensation.
QUESTION: Do I still need to have a self-directed IRA custodian for the IRA LLC even if the LLC will be self-administrated? If so, which custodian(s) do you work with most often?
ANSWER: Yes an IRA custodian is still required because they have to do the annual reporting with the IRS. For example, the IRA custodian has to issue a Form 5498 each year to report the total value of the IRA including the LLC. Many of our clients use IRA Services Trust Company because they have been in business since 1978 and their annual fee is 1$80 a year; however, you get to choose your IRA custodian.
QUESTION: In which state will this IRA LLC be registered?
ANSWER: The LLC is registered in the state that you live in
QUESTION: Does your fee cover the LLC state registration fee?
ANSWER: No our fee does not cover the LLC registration fee.
QUESTION: Does the IRA LLC need to file an annual report and pay annual registration fee in that state?
ANSWER: Yes the state may require an annual report and charge a fee. This depends on your state.
QUESTION: Your website says that a single member IRA LLC does not need to file tax return because it is considered disregarded entity. Do I need to include this LLC in my personal tax return?
ANSWER: No the IRA LLC activity is not reported on your personal tax return.
QUESTION: What if the LLC generate UBTI? Do I need to file a separate tax return for the IRA LLC in that case?
ANSWER: If the IRA LLC generates UBIT or UDFI, then yes a separate tax return known as form 990-T will need be filed with the IRS and the tax payment will need to be paid with IRA funds as this tax is assessed on the IRA.
How can we roll over my Roth IRA into a self employed IRA so we have more choices than stocks and bonds?
It is not possible to transfer a Roth IRA to a self-employed plan. But you can open a checkbook ROTH IRA that will allow for investing in alternative investments such as real estate. Click here to learn more.
Can you send me a list of your current custodial fees?
We do not act as the custodian. The vast majority of our customers are at a company called IRA Services Trust Company – please see the fee schedule located on their website. Of course, you can choose a different custodian if you prefer.
I have several retirement accounts to transfer/rollover do i need to wait for all of them to be transferred before opening the LLC?
You can rollover over at the same time or over a period of time.
Do i need to open the LLC within a certain time after establishing the IRA?
What IRS rule covers survivor-ship, i.e. when i die does it get dissolved or can my kids keep funding it?
It depends on who inherits the IRA. If the IRA is inherited by your spouse, it is treated as if it was your spouse’s IRA all along (e.g. your spouse could continue to make contributions to the account). If inherited by a nonspouse IRA, it is treated differently & the beneficiary needs to start taking distributions.
- The Investor is an “employee benefit plan” as defined in Section 3(3) of ERISA, which is subject to Part 4 of Title I of ERISA.
- The Investor is a “plan” as defined in Section 4975(e)(1) of the Internal Revenue Code, including, without limitation, individual retirement accounts and Keogh plans.
- The Investor is an entity whose underlying assets include “plan assets” (as defined under Section 3(42) of ERISA) by reason of a plan’s investment in the Investor. If true, the Investor hereby certifies that _____% of the total value of equity interests in the Investor is held by “benefit plan investors” as defined in ERISA
In this case neither of the options presented apply because it is the Roth owned LLC making the investment, not the Roth IRA.
LLC Tax Return QUESTION:
If my wife and I invest both or our respective IRAs in the same LLC will that trigger any LLC tax return filing requirement?
While both IRA accounts can invest in one LLC, this means that there will be two members of the LLC such that a partnership tax returns will have to be filed for the LLC (e.g. form 1065 with the IRS) as well as a K-1 for each IRA.
Additional Funding and Flow of Funds QUESTIONS:
If I need to add more funds, do I need to do that in a certain way? Let’s say I need another $10K to complete a property purchase.
Good questions. The funds cannot come from your own pocket. Reason being, the LLC is owned by your IRA and it would result in a prohibited transaction if you commingled your your personal funds with IRA funds.Instead, you can make an annual IRA contribution based on the IRA limits for the year, and/or transfer other IRAs or former employer retirement plans to the IRA.
The annual IRA contribution and/or transfers from other IRAs or former employer retirement plans have to first flow directly to the self-directed IRA because they must flow to an IRA in order to maintain there tax sheltered status. Once inside the self-directed IRA, they can be invested in the IRA LLC.
Rent Checks QUESTION:
If purchase real estate through the IRA LLC and collect rent, who will the check be made out to? My company name or the IRA custodian?
The main purpose of investing an IRA in a LLC is to invest in real estate through the LLC; therefore, not only will the LLC own the property, all the rent checks have to flow back to the LLC bank account. As such, the rent checks must be made payable in the name of the LLC.