Top 3 Reasons to Use a Self Directed IRA LLC to Invest

Top 3 Reasons to Use a Self Directed IRA LLC to Invest

Single-Member LLCs used to invest in an IRA are also known as Checkbook IRAs or Checkbook-Control IRAs. They are somewhat sophisticated investing structures offering great benefits to facilitate the investing process.

It is important to understand the details of these types of plans because the plan owner must adhere to two sets of rules: the rules of self-directed retirement accounts and the rules regarding limited liability companies.

Regardless, many investors who believe the benefits far outrank the rules and paperwork favor the use of checkbook control IRAs.

Why Do People Use a Self-Directed IRA LLC?

Tax-free growth, timely asset acquisition, and cost-effective fee structure are the three most compelling reasons people choose to use checkbook IRAs.

  1. One reason investors choose Checkbook Control LLCs is to enjoy the protection that typical LLCs offer layered on the tax exemption status of investing in alternative assets within a retirement account. Real estate, private equity, private lending, gold, and much more can be held in checkbook IRAs and have the potential to increase retirement earnings.

  2. Another reason investors look to checkbook control LLC's is this structure offers quick access to investing funds allowing investors to buy what they want to buy when they want to buy it. Account owners don’t have to go through the IRA administrator to buy and sell property, which can take some time. Checkbook control lets investors skip that step and purchase assets with funds already held in the LLC’s bank account. A checkbook control LLC also allows the client to pay expenses directly from the LLC’s operating bank account, rather than going through the custodian for approvals.  This feature is helpful to real estate investors who may have real estate taxes due, HOA fees, repairs, and other expenses associated with the property.

  3. When investing in multiple properties, investing in the LLC allows the IRA owner to avoid multiple asset fee charges they may incur from the IRA administrator. Think of the LLC as being the only investment inside the IRA. Regardless of how many assets the LLC acquires, the IRA only recognizes the LLC as an investment when determining asset-based fee charges.

How Do Single-Member LLCs Work Within a Retirement account?

Before you use a self-directed IRA LLC, you must first understand how it works.

Your IRA forms an LLC and is the only member of that entity.

  • As the IRA owner, you can be designated as the LLC manager, allowing you to set up a bank account in the entity's name.
  • Funds are moved from the IRA and deposited into the LLC’s bank account which the manager of the LLC should establish.
  • You now have checkbook control to write checks from that account to purchase your investments or pay expenses.

You can set up your Single Member LLC through our sister company, Midland Forms.

The Role of Managers

The manager has important responsibilities. You are required to keep thorough and detailed paperwork that pertains to the operation of the LLC. You must also know the rules that govern self-directed investing accounts inside and out. We strongly advise that you get help from a tax attorney, CPA, or other financial professional to ensure the LLC is set up correctly and complies with IRS standards.

Also, when you use a self-directed IRA LLC, you lose the oversight of your self-directed plan administrator in some areas. It is critical that you educate yourself on how to invest and maintain your account in compliance with the IRS. If you don’t, you run a huge risk of incurring heavy penalties and/or taxation including losing the tax-sheltered status of money in your IRA. 

Clients of Midland receive one-on-one attention and service when investing in their self-directed IRAs. Contact us anytime if you have questions about self-direction, IRS rules, and prohibited assets. We are here to help give you the information you need in order for you to make an informed decision on your path to reaching financial freedom in retirement—and to help ensure your account maintains its tax-sheltered benefits to reach that goal.

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