IRAs can invest in a multi-member partnership or LLC through self-direction. It is essential to understand the prohibited transaction rules and disqualified person rules when setting up an LLC. Click here to learn about disqualified persons and prohibited transactions. Closely-Held LLCs can refer to an LLC or partnership in which a small group of people owns different types of investments. Some of the most common investments in an LLC include real estate and private notes.
Rules & Responsibilities With Closely-Held LLCs and Partnerships
- Closely-Held LLCs offer a great deal of flexibility for IRA investors. Closely-Held LLCs can include Single-Member LLCs, but typically we are talking about multi-member entities. However, additional responsibilities and rules surround these investments and the set up of the entity.
- All parties involved need to familiarize themselves with the Prohibited Transactions rules (IRC 4975). These rules are critical to avoid potential tax consequences. It is highly encouraged that you seek competent advice from an attorney or tax advisor. These professionals understand the rules related to investing your IRA into an LLC.
- The IRA holder may not have the authority to sign LLC documents as the investor. Typically the IRA administrator will sign the original LLC or partnership subscription document, and the LLC manager will sign for the purchase of assets. Additional LLC capital contributions funded by the IRA at a later date may be prohibited, so it is important to understand the IRA Rules.
- Please note, the IRA owner must submit a valuation of the LLC to Midland on an annual basis. Valuation calculates all cash, brokerage, real estate, and other assets inside the LLC.
Documents Required Before Investment Funding
- Private Placement Purchase Authorization
- Private Investment Disclaimer & Indemnity Agreement
- LLC/LP Acknowledgment Letter Initialed and signed by Managing Member or General Partner
- LLC Documentation
- Complete Operating Agreement
Client to initial bottom right-hand corner of each page as “Read and Approved.” Midland executes the Operating Agreement on behalf of the IRA.
- Schedule of Members
- Must contain these elements:
- List of all investors (both IRA and non-IRA) to the Closely-Held LLC.
- For each investor, indicate the total amount of capital contributed.
- May also show the percentage of total ownership for each investor.
- Title IRA investor names as:
Midland Trust Company as Custodian FBO Client Name, Client Account Number
P.O. Box 07520 – Fort Myers, FL 33919
Trust Tax ID: 47-5560347
The client must supply these documents to Midland by fax, email, or mail.