How to Own an LLC Within a Self-Directed IRA – And Do it Right!
Many people are surprised to learn that you can own limited liability companies (LLCs) within a Self-Directed IRA. It is true, there are certain things you cannot own within a Self-Directed IRA, including S corporations, collectibles, art, alcoholic beverages, jewelry, gems and life insurance. But it is perfectly acceptable and legal to own an interest in an LLC, or even a whole company outright within your self-directed retirement account. Indeed, thanks to the growing interest investors have in leveraging the tax advantages of self-directed retirement accounts with the flexibility afforded by LLCs, the number of people owning LLCs within Self-Directed IRAs is rapidly growing.
LLCs have the advantage of allowing the owner to execute “checkbook control” of his or her investments using Self-Directed IRA money. But it is not necessary to do so and doing so can potentially increase the chance of accidentally running afoul of laws and regulations that prohibit self-dealing using IRA funds. Keeping a very strict separation between your own money and that which belongs to your Self-Directed IRA and the LLCs and other entities within it is critical to staying out of hot water.
If you believe an LLC may be right for you, here are a few things to keep in mind before you get started:
- Make sure to name the LLC as part of your Self-Directed IRA account, and not in your own personal name. Putting it in your personal name, rather than listing the IRA or other retirement account as the owner, could put the tax advantaged status of your Self-Directed IRA at risk. The same goes for the LLC’s bank accounts, and any other accounts it may have.
- Get a separate employer identification number for your Self-Directed IRA. Do not use your Social Security number.
- If you own property within a Self-Directed Real Estate IRA LLC, be sure to use the LLC’s checking account to pay all expenses associated with the property, from maintenance costs to property taxes to mortgage payments. If you elect not to use the Checkbook IRA technique, have American IRA, LLC handle the transaction for you, in a way that is compliant with IRS regulations and applicable laws.
- Have all rental income and other cash inflows go directly to your Self-Directed IRA’s account, and not your account. Do not collect rent payments directly or route them through your own accounts, or you could accidentally engage in a prohibited transaction, resulting in the possible forfeiture of the tax-advantaged status of your retirement account. This could result in substantial immediate tax liability, plus penalties and attorneys’ fees.
- Do not try to pay yourself a salary or take any other form of compensation for managing your Self-Directed IRA or any LLCs within it.
- Do not stay overnight in the property your Self-Directed IRA LLC Do not vacation in the property or allow your children, grandchildren, spouse or advisor who works with you advising you on your Self-Directed IRA to use the property. This would be considered a prohibited transaction.
- Do not move personal funds into the Self-Directed IRA LLC’s checking account.
- 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. Checkbook Control IRAs require a specialized operating agreement. For more information please contact American IRA.
Interested in learning more about Self-Directed IRAs? Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation. Download our free guides or visit us online at www.AmericanIRA.com.