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Single-Member LLC – Checkbook Control in Your Self-Directed IRA

single-member llc

Self-directed retirement plans offer flexibility to investors. There are several strategies that investors can employ to achieve their financial goals. Investors looking for ease of use of their retirement funds should consider a Single-Member LLC. Single-Member LLCs are one of the most popular strategies used by self-directed investors. We will review what a Single-Member LLC is, what benefits it can provide to an investor, and what items an investor might want to keep in mind.

WHAT IS A SINGLE-MEMBER LLC?

A Single-Member LLC is an investment structure. It’s achieved when a self-directed retirement account invests in and owns 100% of a new LLC. The investor/owner of the self-directed retirement plan is the LLC manager on the Articles of Organization. They are responsible for making the LLC’s investment decisions.

The investor/manager will set up a bank account in the LLC’s name. They fund the account exclusively from their self-directed retirement plan. From there, they can fund investments in the name of the LLC. This gives them the same tax benefits as their self-directed retirement plan would. The account receives these tax benefits because the retirement plan owns the LLC.

WHAT ADVANTAGES DOES A SINGLE-MEMBER LLC PROVIDE TO MY RETIREMENT ACCOUNT?

Single-Member LLCs give the manager added control over their retirement account funds. It is important to note that the LLC is an asset within the retirement account. Therefore, it should adhere to the IRS rules and guidelines for IRAs. “Checkbook control” is another name for this provision. Checkbook control allows an investor to make quick payments to obtain or maintain an asset. The investor is able to make these payments without requesting funds from their retirement plan’s custodian.

An example of how this could be useful for an investor would be if the investor is attending a real estate auction and needs to pay for the property if they win the auction. This transaction would not be possible if the investor did not have a Single-Member LLC within their retirement plan. The functionality of having immediate access to LLC funds in this situation is vital to the auction process.

Another example of how checkbook control proves important to a real estate investor is if an emergency expense related to the investment property incurs. As outlined by IRS guidelines, all expenses incurred by an asset owned exclusively by an IRA or other retirement account must be paid by that same account. The same rule applies to Single-Member LLCs. If you own a property in your LLC that incurs an emergency expense, you have checkbook access to your LLC funds. You wouldn’t have direct access to those funds if you held the property in your retirement plan. This is a noted benefit of Single-Member LLCs.

WHAT SHOULD I CONSIDER BEFORE FORMING A SINGLE-MEMBER LLC?

Single-Member LLCs are powerful tools. Due to filing requirements and the ability to give an investor quick access to retirement funds, there are some considerations to make before choosing to use a Single-Member LLC to structure your investments.

First, you may want to obtain an attorney or legal counsel in establishing your LLC. Some custodians, such as Midland Trust, offer an in-house LLC set-up service specifically for retirement plans. If you have an interest in establishing a Single-Member LLC in your retirement plan, you can learn more at www.midlandtrust.com.

Second, because the LLC manager has quick access to retirement plan funds, the LLC manager must be aware of all applicable IRS guidelines concerning prohibited transactions, disqualified parties, and prohibited investment types. If you are unaware of the IRS guidelines for retirement accounts as a manager of a Single-Member LLC, it could be easy to break those rules and guidelines without even knowing. Learn more about prohibited transactions and disqualified parties. However, if you can navigate the rules and guidelines, the power a Single-Member LLC can provide your retirement plan could be an excellent resource for you.

GET STARTED TODAY

If you are looking for information on self-directed IRAs or an Individual 401(k) to house a Single-Member LLC, www.midlandtrust.com is an excellent resource to start. You can also call us at (239) 333-1032. We would be happy to discuss our services with you and how you could incorporate Single-Member LLCs into your investment portfolio.

MIDLAND TRUST IS NOT A FIDUCIARY: Midland’s role as the custodian of self-directed retirement accounts is non-discretionary and administrative in nature. The account holder or authorized representative must direct all investment transactions and choose the account’s investment(s). Midland has no responsibility or involvement in selecting or evaluating any investment. Nothing contained herein shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.