FREE REPORT !! Learn the Process Necessary to Setup and Operate a Self Directed IRA LLC with Checkbook Control
10 Steps to a Self
Directed IRA LLC
Copyright 2013 Self Directed IRA LLC. All Rights Reserved.
Congratulations! for taking your first step to join a growing trend among knowledgeable individual retirement account owners….investing their retirement funds in a Self Directed IRA LLC with checkbook control and using that self-directed IRA to purchase real estate and other non-traditional IRA investments.
When using an LLC to make the investments of your choosing, you will effectively have check book control of your investments. When you have an investment you want to purchase all you need to do is write a check from your LLC bank account (usually a checking account) to purchase the investment in the
name of your LLC.
There is no need to obtain approvals from your custodian. There is no time delay awaiting approval from your custodian.
If the option of using tax-deferred funds to purchase investments, property or mortgages in your retirement planning sounds appealing, you will need to locate an independent IRA custodian that allows Self Directed IRA investments and work with that company to set up a Self Directed IRA custodial account
Most banks and brokerage companies…the most common IRA account custodians…limit your choices to certificates of deposit, stocks, mutual funds, annuities, and similar financial instruments as it is their best interest to do so - they make their money from the sale of these types of investments.
1. Form a Limited Liability Company
A LLC (Limited Liability Company) is a business entity that is a hybrid of a corporation and a partnership. LLC’s provide limited liability protection to its owners. Typically, the owners are not personally responsible for the debts and liabilities of the business; therefore, creditors cannot pursue owners’ personal assets (such as a house or car) to pay business debts. LLC's typically do not pay taxes at the business level. Any business income or loss is "passed-through" to the owners and reported on the owners’ personal income tax returns. Any tax due is then paid at the individual level. This is favorable as the LLC itself will not pay any taxes; rather, it will be the owners of the LLC that pay the taxes. Since the LLC will be owned by your IRA all taxes will be deferred until you start taking distributions from your IRA (and in certain circumstances there will be NO taxes due).
2. Operating Agreement
Limited Liability Companies are required to have an Operating Agreement - the rules by which the limited liability company is governed. Most LLC's that are formed by Incorporating Companies will provide a kit that includes a generic Operating Agreement.
Warning:
An Operating Agreement that meets all the necessary IRS requirements for a Self Directed IRA should be prepared by a qualified attorney or company that specializes in Self Directed IRA’s. The generic Operating Agreement that comes with kits you see on the internet and provided by incorporating companies is not sufficient to serve as the operating agreement for your Self Directed IRA LLC.
3. Obtain an EIN
The Internal Revenue Service requires your Limited Liability Company to have a tax identification number known as an Employer Identification Number (EIN).
4. Locate a Custodian
You will need a custodian that specializes in the administration of Self Directed IRA’s. This term was coined by the financial industry in the 1980s to distinguish the self-directed IRA from other IRA's that focus on stocks and bonds. The IRA account holder cannot serve as the custodian of his or her own custodian.
5. Transfer to Custodian
Your current IRA or retirement plan Custodian can assist you in transferring fund to your new Custodian.
6. Invest in LLC
After your funds have been transferred to your new Custodian you will then have the new Custodian invest in and transfer your funds to your LLC.
7. Membership Certificates
Membership in a limited liability company is divided into units and the units are transferred using certificates, just like stock.
8. Open LLC Bank
You will then open a checking account in the name of your LLC, you will use the check you received from your custodian to open the LLC bank account.
9. Ready to Invest
Congratulations! You are now ready to invest using your Self Directed IRA LLC. Remember there are certain restrictions on the types of investments you can make and some investments are prohibited.
Consult your tax advisor or tax attorney if you are unsure about any investment.
10. Choosing Investments
Prohibited Transactions
The only thing that the IRS says that you cannot purchase using your IRA is Collectibles and Life Insurance. Also you cannot have any “self dealings” which are prohibited transactions. In general,
Frequently Asked Questions
What type of retirement accounts can I move into a Self Directed IRA LLC?
Any retirement account that allows a transfer to a traditional IRA including 401k plans, a traditional IRA, a Roth IRA , and a Simplified Employee Pension plan, or SEP-IRA.
Is this a new law?
No. It has been allowed for many years. Few people seemed to know about this option – or even care – until the stock market began to decline. Financial institutions, meanwhile, had little incentive to recommend something other than stocks, bonds or mutual funds, since these provided a source for their fees. Section 408 of the Internal Revenue Code permits individuals to use a Self-Directed IRA to
purchase real estate investments such as commercial property, condominiums, residential property, international real estate, mortgages, trust deeds, real estate contracts, private placements, limited partnerships, limited liability company’s (LLC’s), and many other types of investments with retirement funds held in many common forms of IRA’s, including 401k’s, Traditional IRA, Roth IRA, and Simplified Employee Pension Plan or SEP-IRA. (See IRS Publication 590 Individual Retirement Arrangements). Also see Swanson vs. Commissioner
How do I know this is legal?
Discuss this strategy with your tax advisor. If he is unfamiliar with it have him consult resources such as The Journal of Taxation, the Journal of New York CPA’s and Trust and Estates magazine and other resources used by tax attorneys and PAs.
You can also see Section 408 of the Internal Revenue Code. Also see Swanson vs. Commissioner
Can my LLC purchase real estate I already own?
No, not without filing for an exemption. Property that you or a disqualified person has ever owned is not eligible to be purchased by your LLC since this would be a prohibited transaction,
Can I co-invest with the IRA of my spouse or other investors?
Can I buy vacation property?
Yes, but you cannot personally use it. Neither you nor any other disqualified person can have any personal use or benefit of the property while it is held in your retirement account. The property must be purchased for investment purposes only. However upon reaching retirement age you could take the property as a distribution (see Buying International Real Estate with an IRA).
Can my LLC make loans with its funds?
Yes, you can make loans to any person or entity that does not violate the “related party” rules.
Can my LLC invest outside the country?
Yes, there are a lot of investment opportunities outside the country that are now available to you including
international real estate.
Can I still invest in stocks and bonds?
Yes, you can invest in anything that is not a prohibited transaction.
Must I have a custodian for my IRA?
Absolutely, all IRAs are required to be held by an IRA Custodian approved by the IRS. Only a few of these allow truly self-directed IRAs.
Will my custodian assist me in setting up an IRA LLC?
No, they will not. However, Self Directed IRA LLC can set up your IRA LLC.
Must I form my LLC in my state of residence?
No, you can use most any state you prefer. Nevada, Arizona and Florida are popular options. You can form an LLC in a state without residing in it.
How much time does it take to implement this strategy?
That depends upon how long it takes your current IRA Custodian to transfer your funds to your new IRA
Can my LLC borrow funds to finance a real estate purchase?
Yes, but only with the use of a non-recourse promissory note issued by a lending institution or by the seller of the property. The non-recourse promissory note cannot be personally guaranteed, and the lending institution can only look to the property securing the note as collateral. Important: Debt-financed property may generate Unrelated Business Income Tax (“UBIT”), and any taxes due must be paid by the account. For more information regarding UBIT, please consult your tax advisor. (See IRA Non-Recourse Financing).
In addition to real estate what investments can my IRA purchase?
Conclusion
Using a Self Directed IRA LLC is taking a big step in your financial planning and it must be done
correctly.
You may want to consider having an experienced company handle the process and set up a “turnkey” solution for you. If so, please contact
