How do Self-Directed IRAs and LLCs Work Together?

Are you looking for closer control of your retirement funds? You might want to think about adding a Limited Liability Company (LLC) to your Self-Directed IRA. Is it imperative that you have an LLC? No, it is not. You can buy any alternative asset, except collectibles and life insurance, without an LLC. But it could be helpful to understand how Self-Directed IRAs and LLCs can work together to give you more flexibility with your investing.

So, how do Self-Directed IRAs and LLCs work together?

When you establish an LLC, it is a legal entity that can purchase assets, giving you more freedom to manage your retirement funds. Since you will have direct access to your Self-Directed IRA, you will get funds quickly for real estate purchases or maintenance. Just remember that these funds are the Self-Directed IRA’s assets and do not belong to you personally.

Any funds cannot return to you but must go back to your Self-Directed IRA. If your LLC wants to purchase an investment by borrowing money in the form of a non-recourse loan, you might be required to make additional filings for your Self-Directed IRA. It is always a good idea to consult a tax advisor if you have questions.

It is fairly common for retirement investors to establish an LLC as a subset of a Self-Directed IRA, which makes it possible to combine personal funds or Self-Directed IRAs from other investors to fund the LLC. Many of these investors then open a Self-Directed Checkbook IRA, making it easier to manage the LLC.

What is a Self-Directed Checkbook IRA?

Often called “checkbook control,” the Self-Directed Checkbook IRA gives the owners of a Self-Directed IRA signing authority over an account that gives access to their retirement funds. Because the LLC is a business entity, it can have a checking account. Funds for the checking account are provided from the retirement assets in the Self-Directed IRA.

After the LLC is set up with a checking account, you (the Self-Directed IRA holder) will have “checkbook control” over your Self-Directed IRA funds. You will now be able to disburse funds quickly and possibly avoid certain administrative fees.

And while Self-Directed IRAs and LLCs can work well together with checkbook control, there is also increased responsibility placed on the IRA owner, for example, understanding the prohibited transaction rules. You will need a specially prepared operating agreement, Tax ID number, a bank account, financial books, and provide recordkeeping and accounting. You will also need to understand the IRS rules that pertain to Self-Directed IRAs and to abide by them.

Keep in mind these advantages of a Self-Directed IRA LLC with checkbook control

  1. More control of your investments

With a Self-Directed IRA with LLC, you can protect and diversify your retirement funds. As soon as you find an investment you want to buy, you write a check. You avoid all the paperwork that goes with depending on your administrator and waiting for them to write it. Having this control can be a big advantage when there are time issues, such as with an auction.

  1. Fewer administrative costs

With checkbook control, you do not pay the administrative and transaction fees that usually come with Self-Directed IRAs. If you have several investments in your LLC, your administrator only charges you for one asset, the LLC. As a result, more of your retirement dollars are working for you.

  1. A word of caution on due diligence

Before you make the final decision to register as an LLC, protect yourself with due diligence. Find out if there might be drawbacks or costs you were not expecting. There could be tax requirements, fees from your state, or certain limitations.

Rules for LLCs vary by state, and just as with any other Self-Directed IRA investment, you need to be careful to avoid prohibited transactions that could endanger the tax-advantaged status of your IRA.

American IRA requires that all Single-Member IRA LLC documents be prepared by a qualified professional with an understanding of Self-Directed IRAs and LLCs. Self-prepared documents cannot be accepted.

Interested in learning more about Self-Directed IRAs or LLCs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at