IRA/LLCs – What You Need to Know

Updated : Sep 19, 2019 in Articles

IRA/LLCs – What You Need to Know


Hi, I’m Mat Sorensen, attorney and author
of The Self-Directed IRA Handbook, the most widely-used book on self-directed IRAs. Now, today we’re going to be talking about
the IRA/LLC, sometimes called a “checkbook control IRA.” Now, an IRA/LLC is used by many self-directed
IRA investors as a way to more efficiently handle and invest their assets. Now, it consists of two parts: First, a self-directed
IRA; second, an LLC owned 100% by that IRA. Now first, a self-directed IRA: If you have
existing retirement plan money, but not a self-directed IRA yet, the first step you’ll
need to do is find a custodian who allows you to self-direct. Who allows your IRA to invest in real estate,
LLCs or other forms of alternative investment. You’ll roll your existing retirement plans
over into that self-directed IRA. Now, step two, is: We’re going to have that
self-directed IRA invest into the LLC. It’s going to own the LLC 100%. It’s going to invest an amount of cash in
which you designate into the LLC. This is a specific LLC: It’s an “IRA/LLC.” It’s very unique from regular LLCs. There’s provisions in these documents that
are different than a regular LLC document. This LLC is going to be used to actually own
the assets. So, rather than my IRA owning real estate
directly, the IRA will own an LLC, the LLC in turn will own the real estate. Now, the LLC’s going to have an LLC business
checking account. That’s where the IRA money’s going to get
deposited for the investment from the IRA. You can be manager of the LLC. As manager of the LLC, you can manage the
LLC business checking account, you can sign for checks, receive income in the LLC business
checking account. When the LLC wants to go make investments,
you can sign on contracts for the LLC as manager of the LLC. Now, keep in mind, you don’t own this LLC;
your IRA does. You’re simply acting as manager of the LLC,
and manager of an LLC is like the President of a corporation. You’re simply the person who can act on behalf
of the company. Now, there’s a few things you cannot do as
manager of the IRA/LLC. First, you cannot pay yourself compensation,
salary or any fees for being the manager of the IRA/LLC. Nor could you pay them to any other disqualified
persons, like your spouse or children. Second, you can’t have use of the assets or
benefit of the assets that the LLC owns. And third, the funds in the LLC need to be
separate from your personal funds. Do not mix your personal bank account or personal
assets or investments with the IRA/LLC. Now, there’s a few things you need to know
when you actually operate your IRA/LLC. First, keep in mind the LLC should be on title
to any assets, not the IRA, not you personally. The LLC will be on the deed to the rental
property, or the LLC will be the lender on the note, or whatever it is the investment
you’re making, the LLC is on title to that. Second, the IRA/LLC, if it’s owned 100% by
your IRA, is considered a “disqualified entity” for tax purposes. That’s nice because that means there’s no
tax return required by the IRS for the LLC. You simply need to keep the LLC active with
your state. Lastly, remember: You don’t own the LLC, your
IRA does. If you want to take money from the LLC, you
need to first send the money from the LLC back to your IRA and then you take a distribution
from your IRA. You can never take money for yourself directly
from the LLC. Also, when you’re putting more money in, you’re
making new contributions, you cannot just deposit it into the LLC. Contributions need go first into your IRA,
and then you’ll invest those additional contributions into the LLC. Hey, hanks for watching. I want to let you know about some additional
educational materials to better help you take control of your retirement. Please check out my Self-Directed IRA Handbook
and the accompanying video series. I also have an annual Self-Directed IRA Summit
that is recorded and available online virtually at anytime. Please sign up for my free weekly newsletter
that includes my free Self-Directed Investor Toolkit. Also, if you liked the video, don’t forget
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about how you can better take control of your retirement.

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