Just like certain investments cannot be held in a self-directed IRA, a self-directed IRA owned LLC is prohibited from holding the following investment types.
An LLC owned by a self-directed IRA cannot invest in collectibles such as art, stamps, coins, alcoholic beverages, or antiques. [IRC 408(m)]
S-corporation rules prohibit the purchase of S-corporation stock by an IRA owned LLC because it is not deemed a qualified owner. However, this restriction does not apply to loans by IRA LLC owned IRAs to S-corporations. The S-corporation restriction does not apply to self-directed Solo 401k.
An LLC owned by a self-directed IRA cannot invest in life insurance, IRC 408(a)(3); however this restriction does not apply to a Solo 401k.
An LLC owned by a self-directed IRA cannot invest in any investment that constitutes a prohibited transaction pursuant to IRC 4975, such as the purchase of a piece of real estate from the self-directed IRA LLC manager’s son or daughter.
An LLC owned by a self-directed IRA cannot invest in any investment that violates the exclusive benefit rule of IRC 401(a). The self-directed IRA LLC investment must be solely for the exclusive benefit of the IRA (i.e., pay FMV, have a fair return, and must have sufficient liquidity to allow distributions).
NOTE: IRC 408(m)(3). Some gold, silver, or platinum coins that may otherwise be deemed collectible coins have been approved for investment by a self-directed IRA. Acceptable coins include American Eagle Coins, American Gold Buffalo Coins, American Silver Eagle, and those deemed to have specific purity and content.
Unsecured Promissory Notes – A self-directed IRA LLC may invest in unsecured promissory notes provided the notes do not violate the exclusive benefit rule in IRC 401(a) or the prohibited transaction rules in IRC 4975.
IRC 4975 (c) (1)(B) prohibits a self-directed IRA owned LLC from making any “lending of money or other extension of credit between a plan and a disqualified person.”
COMPLIANCE NOTE: A disqualified person includes, but is not limited to, the IRA LLC owned participant/manager (as fiduciary), their spouse, kids, parents, 10% or more partners, and any company the self-directed IRA owned LLC owner or other disqualified party that owns 50% or more of (or manage).