Single-Member LLCs used to invest in an IRA are also known as checkbook or checkbook control IRAs. Often called a self-directed IRA LLC, these are somewhat sophisticated investing structures that have great benefits to facilitate the investing processes. However, these accounts are complex, as the plan owner must adhere not only to the rules of self-direction, but also to those 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?
- To enjoy the protections that typical LLCs offer with a bonus in gaining the Freedom to Invest™ in alternative assets. Real estate, private equity, private lending, gold, and much more can be held in checkbook IRAs and have the potential to increase retirement earnings.
- For quick access to investing funds allowing timely asset acquisition. 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.
- 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 with a self-directed IRA?
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 manager of the LLC, which allows you to set up a bank account in the name of the entity.
- Funds are moved from the IRA and deposited into the LLC’s bank account.
- You now have checkbook control to write checks from that account to purchase your investments.
The role of managers
The manager has important responsibilities. You are required to keep thorough and detailed paperwork that pertain to the operation of the LLC. You must also know the rules that govern the 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 runs in compliance of 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. Your IRA may also lose its tax-sheltered status. Know the regulations to prevent this from happening because this risk does not outweigh the benefits of having checkbook control of your hard-earned retirement funds.
Clients of Midland receive one-on-one attention and service when investing in their self-directed IRAs. Contact us at any time 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.