The Single Member LLC can be a powerful tool for building a business. But why do so many investors like to put it under the umbrella of a Self-Directed IRA? To explain that we’ll have to get into the mechanics of Self-Directed IRA investing, as well as how this arrangement can result in an investor having “checkbook control” within a Self-Directed IRA account. Here’s what you’ll need to know.
The Basics of Understanding a “Single Member IRA LLC”
The arrangement—sometimes called a Single Member IRA LLC—is more straightforward than it sounds. In a Single Member IRA LLC, you’ll use funds from a Self-Directed IRA to purchase an LLC that you set up. In essence, the LLC is an asset that your Self-Directed IRA then owns. But because the control over the LLC reverts back to the managing member of the LLC, you would then have “checkbook control” of this LLC’s checking account. This gives the manager of the LLC the power to purchase assets and make investments on behalf of the Single Member IRA LLC.
As you might imagine, this can give you a lot of freedom when making retirement investments. In fact, at our Single Member IRA LLC page, we note that people might often think at this point: why would anyone not want to do this?
The answer: with more freedom comes more responsibility. Single Member IRA LLCs with checkbook controls feature rules that you’ll have to abide by. The easiest way to make sure that you adhere to these rules is to stick to the advice of professionals in your corner. A Self-Directed IRA administration firm might just be one party you reach out to in order to build a solid foundation when using a Single Member IRA LLC. You should also consult with financial advisors and tax professionals to make sure everything you’re doing is in line with the regulations.
Why Use a Single Member IRA LLC?
It may sound like a lot of work to put a Single Member LLC into a Self-Directed IRA. But the truth is, most of the work in making this arrangement happens upfront. If you can work with a reputable Self-Directed IRA administration firm, for example, you’ll already be much closer to making it happen than you might imagine.
There are upfront considerations and fees to keep in mind. But once you have the arrangement in place, you might be surprised at the amount of freedom you have. Typically, a Self-Directed IRA means you have to direct a Self-Directed IRA administration firm to execute a trade on your behalf. But using checkbook control, you’ll have more freedom in controlling what ends up in your Self-Directed IRA. This allows you to take advantage of what happens within a Self-Directed IRA—namely, that you can access a wide variety of potential retirement assets.
An investor with this kind of power and tax protection within a Self-Directed IRA can do a lot to for their financial destiny. However, it should go without saying that when you’re the one calling all the shots, the responsibility for what happens to your portfolio also lies with those decisions. Reach out to people you can trust along the way—people qualified to make specific recommendations as to how you should proceed. A Self-Directed IRA administration firm can’t pick your investments for you, but it will help you set up the initial Self-Directed IRA LLC arrangement that helps you build the retirement portfolio of your design.