The allure of real estate as an investment is undeniable. There’s only so much real estate in the world, after all. As supply remains fairly static and demand increases, prices can feel bound to go up. But you can enhance your ability to invest in real estate by using a retirement account and an LLC—which enables you to exercise “checkbook control.” For some, the answer might be a Self-Directed SEP IRA LLC arrangement for investing in real estate. Is it the answer for you? Let’s dive in.

What Is a Self-Directed SEP IRA LLC?

A Self-Directed SEP IRA LLC merges the benefits of a Simplified Employee Pension (SEP) IRA with the additional control you can achieve with a Limited Liability Company (LLC). But let’s simplify what this means. The SEP IRA is a type of retirement account designed for self-employed individuals and small business owners, offering tax-deferred growth on contributions. By adding the self-directed and LLC components, you gain more control and flexibility over your investments. And that includes the ability to directly invest in real estate.

How Does It Work?

At first glance, it sounds like a lot. But if you break down the SEP IRA LLC into baby steps, you’ll see it’s not as difficult as it sounds:

• The journey begins by setting up a Self-Directed SEP IRA with a custodian who specializes in these accounts. This type of SEP IRA allows for a broader range of investments compared to traditional SEP IRAs, including real estate and other alternative assets.
• Next, you form an LLC, which is owned by the Self-Directed SEP IRA. This LLC becomes the investment vehicle for your retirement funds, enabling you to make direct investment decisions without the need for custodian approval.
• Once the LLC is established, you transfer funds from your SEP IRA into the LLC. This funding enables the LLC to purchase and manage real estate properties or other assets, according to your investment strategy.

Next? With a Self-Directed SEP IRA LLC, you have direct control over investment decisions. You can write checks or make electronic transfers from the LLC’s bank account to fund real estate purchases, manage properties, and handle other investments directly.

The Benefits of a Self-Directed SEP IRA LLC for Real Estate Investment

One of the primary advantages to setting things up this way? The expanded range of investment options. The traditional approach to SEP IRAs might limit you to stocks and bonds. But a Self-Directed SEP IRA LLC allows you to invest in real estate: residential, commercial, and raw land. This flexibility can significantly enhance your investment strategy.

The LLC structure provides you with hands-on control over your investments. You can now make timely decisions and execute transactions quickly, which is particularly beneficial in a fast-paced real estate market.

Don’t forget that investments made through a Self-Directed SEP IRA LLC benefit from tax-deferred growth. This means that any income or gains generated from real estate investments are not taxed until you withdraw the funds in retirement, potentially offering substantial tax advantages.

Ultimately, it comes down to this: by using checkbook control, you eliminate the need for custodian approval on every transaction. This process simplifies real estate investments and reduces your administrative hurdles. Given the complexities here, we’d recommend you consult with professionals, such as tax advisors or attorneys who specialize in self-directed IRAs and LLCs. Their expertise can help you navigate the setup process, ensure compliance, and make informed investment decisions.

And it wouldn’t hurt to reach out to a Self-Directed IRA administration firm, either. Want to chat about Self-Directed SEP IRA LLCs for real estate? Give us a call at 866-7500-IRA.