As you may have heard, the House Ways and Means Committee has proposed restrictive measures for IRA account holders in Part 3 of the new revenue bill. Each section is particularly onerous, and one that stands out is Section 138315. However, the crafters of this legislation do not have the investment or legal knowledge to understand why investments are structured the way they are.
Section 138315 -, for purposes of applying the prohibited transaction rules with respect to an IRA, the IRA owner (including an individual who inherits an IRA as beneficiary after the IRA owner’s death) is always a disqualified person. This provision would not allow Single Member LLCs where the IRA owner is the manager.
There are many factors leading investors to choose to use an LLC to hold their IRA assets. They are all equally important, and in no particular order, include the following reasons.
LLCs have a level of legal protection that is perfect for some investments, particularly real estate. For many years, LLCs have been the vehicle of choice to protect real estate assets from liability claims and create a layer of protection between the real estate and IRA owners. If this structure is prohibited within IRA accounts, investors will not be able to use this important risk mitigation strategy.
Unique investments require an LLC Structure – some assets are challenging to make administrative decisions or require a special setup that only a Single Member LLC can afford. For example, cryptocurrency requires unique ownership that an LLC is ideally suited to handle. Other assets affected are auction properties or tax lien certificates. These asset classes are very administratively heavy, and the LLC gives the IRA owner enough control to purchase and sell these assets.
For certain IRA owners, an LLC can save them administrative costs. Instead of paying for each asset individually, the administrative fees can be consolidated into one LLC, saving money for the IRA Owner.
Finally, and maybe the most important is extreme control for Smart Investors. Self Directed IRA holders are smart people who have the expertise to conduct legal and complex transactions. Assets directly held by the custodian do not have the same control as when using an LLC.
Never has Congress proposed restrictions on investing like the limitation they are proposing in the current reconciliation bill. As I have noted in past articles, 95% of IRAs have a value of less than $500,000. Unlimited investment choices are needed for IRAs for taxpayers to build their portfolios for retirement. Our country’s saving statistics make this even more clear. The average retirement saving per person is approximately $65,000. Please, do not limit our investment choices and leave the stock market as our only choice.
We at Midland ask that you write your Representative and Senator to let them know you oppose house bill Section 138315 and all the provisions that affect IRA owners. We have a sample letter on a webpage at www.savemyselfdirectedIRA.com. The page is packed with information to help you understand the issue and the importance of stopping this unneeded legislation.
Written by Dave Owens
President of Midland Trust Company