Can an IRA Be Held in an LLC?
Traditional and Roth IRAs enable individuals to make tax-deferred investments for retirement. Traditional IRAs utilize pre-tax dollars while Roth IRAs make use of post-tax dollars.
Self-directed IRA investing enables an IRA owner to invest in alternative asset classes not available through traditional custodians.
Limited Liability
Real estate investors that employ LLCs as part of their rental property investments often employ them to limit their liability and protect themselves from visitor or tenant lawsuits, because an LLC allows visitors or tenants to sue it rather than you directly and claim personal assets owned by you in case someone files suit against it.
If you use an LLC within your SDIRA, it must be established as a manager-managed LLC, rather than member managed (the IRA would manage). Furthermore, articles of organization and an operating agreement addressing possible actions which violate IRA regulations will need to be in place as well.
Additionally, an LLC must be created before investing. This step is vital as the IRS prohibits disqualified persons and prohibited transactions from occurring within an IRA LLC investment. With self-directed IRA LLCs with EINs as checkbook controls, investors can bypass custodian reviews quickly when investing opportunities arise and avoid costly custodial delays and costs associated with working with full service IRA custodians.
Tax Benefits
An IRA LLC allows the SDIRA investor to bypass the processing times and fees charged by custodians when investing directly. Furthermore, such an LLC could open up investment opportunities unavailable through your custodian; including tax lien auctions, REO foreclosure investments, cryptocurrency/alt coin investments and foreign assets among many others.
Real estate investments through an IRA-owned LLC may include both residential and commercial property investments, raw land parcels spanning single family to multi-family houses, building lots and vacation properties; as well as contracts for sale/lease options.
Legal counsel familiar with IRA LLC regulations should help create an operating agreement that includes safeguards to prevent your IRA from engaging in prohibited transactions, such as setting it up with the appropriate state and obtaining its own tax identification number (EIN). Many custodians require such agreements as part of any transfer from an IRA into an LLC.
Flexibility
Self-directed IRA LLCs allow investors to quickly take advantage of investment opportunities without delay; for instance when buying foreclosed real estate properties. By using an LLC structure you can complete transactions quickly without engaging a custodian as needed.
An IRA LLC structure is also ideal for assets that require frequent transactions, like real estate management and lending. An IRA LLC allows you to retain signing control over all contracts entered into by the entity as well as access to an LLC business checking account for asset expenses.
However, commingling of funds between you and the LLC could violate IRS regulations and invalidate its tax-advantaged status. Therefore, you should seek assistance from a qualified tax professional when creating an IRA LLC to ensure it’s correctly set up. Furthermore, it is vitally important that no disqualified person owns shares in that particular company, nor invest personally or deposit personal funds directly into an LLC bank account or pay themselves salaries from that account.
Investment Options
An IRA LLC provides investors with alternative investments such as real estate, tax deeds, private businesses and precious metals. Utilizing such an entity in a self-directed retirement account provides many advantages; however, using such an LLC requires high levels of responsibility as well as knowledge of IRS regulations on disqualified persons and prohibited transactions.
IRA LLCs can be invaluable tools for real estate investments as they enable fast investment decisions without incurring exorbitant custodian fees or dealing with custodial issues. Being able to invest quickly is especially useful when buying foreclosures or distressed properties quickly.
At IRA Resources, we provide an IRA LLC solution. To discover more, reach out to us using either the phone number on this page or through our inquiry form. Our experienced professionals can assist in helping determine whether an IRA LLC meets your investment goals and needs.
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