Self-Directed IRA LLC | Checkbook IRA

Compared to a standard individual retirement arrangement (IRA) that invests in assets such as stocks, bonds and mutual funds, a self-directed IRA (SDIRA) lets you invest in alternative assets, such as real estate, precious metals and cryptocurrencies. In both instances, you’ll work with an IRA custodian. However, with an SDIRA, the custodians only facilitate the investments on your behalf. You have control over the investment decisions. Therefore, you are solely responsible for evaluating assets and their associated risks.

All income and expenses go through the IRA, whether they’re rental income, interest payments or dividends. This requires back-and-forth communication with the custodian and approval for each transaction. If you find this to be cumbersome, setting up a limited liability company (LLC) through your SDIRA may help. The LLC gives you direct control and streamlines your transactions for smoother investing.

What Is a Self-Directed IRA LLC?

An LLC is a company structure that can protect you from personal liabilities in case creditors or customers target or sue your business. An SDIRA LLC is an LLC created specifically for your SDIRA. Instead of you owning the LLC, your SDIRA holds 100% ownership. This separation protects your retirement funds from interested parties due to potential business activities. 

The LLC purchases and owns your targeted investments. For instance, the LLC may purchase a restaurant you want to invest in. You, as the LLC manager, have the signing authority for the transactions — you won’t need to rely on the IRA custodian. You can write checks and initiate transactions through the LLC’s business checking account, which is also why an SDIRA LLC is known as a checkbook IRA.

The LLC can invest in assets available to an SDIRA. The more hands-on approach lets you transact more easily, which can be effective in time-sensitive investments. 

Advantages of an SDIRA LLC

Given the control you have over investment transactions, an SDIRA LLC comes with the following advantages:

• Efficient investing: You have direct control over your investment decisions. As an LLC manager, you can use a physical checkbook tied to your IRA to easily complete investment activities.
• Fewer transaction fees: By reducing the IRA custodian’s transaction involvement, you also reduce potential transaction fees. 
• Tax-advantaged funding: The SDIRA’s tax advantages pass through the LLC. Your SDIRA’s income or investment gains can grow tax-free. You only need to pay income tax with the traditional SDIRA upon withdrawal. However, certain activities may lead to taxes, such as unrelated business income tax (UBIT).
• Asset protection: Because of the LLC structure, creditors and third parties generally can’t come after your retirement funds. If a tenant sues your SDIRA LLC due to an accident in the LLC’s rental property, they can only come after your LLC’s assets.
• Increased privacy: Choosing an LLC name different from your personal name protects your information from public records or business transactions. 

Maximize the Benefits of SDIRA LLCs With Accuplan

At Accuplan, we’ll help you experience and maximize the benefits of a checkbook IRA through practical solutions, such as:

• Easier registration process: Establish your SDIRA LLC and register with the Secretary of State easily with our expert team. Rest assured, our setup process adheres to all relevant standards.
• Tactical Employer Identification Number (EIN) setup: We can help you acquire an EIN for your SDIRA LLC, so you won’t have to navigate the process on your own. By setting up the business properly, you can make the most of the SDIRA’s tax-advantaged benefits.
• Compliant operating agreement: Your checkbook IRA is only legally viable if you’ve compliantly prepared the required documents. Our team can help you write an operating agreement that aligns with the Internal Revenue Service’s (IRS) restrictions, such as undue compensations, disqualified personnel and prohibited transactions.
• Competitive fees: Our services come with competitive pricing, so you can use more of your funds for investing. IRA custodian services don’t need to eat into your SDIRA LLC’s bottom line.

After establishing the LLC, we’ll provide you with a handbook that outlines your account restrictions. This guide makes it easier for you to follow through SDIRA’s complex rules and avoid risking your account’s status.

The Process of Establishing an SDIRA LLC With Accuplan

As a full-service SDIRA provider, we can help you set up your IRA LLC across 50 states. Our average setup and processing time is one to two weeks. The process involves:

1. Free consultation: We’ll first talk about your specific goals, applicable transaction fees and what role we will play.
2. Setup and funding: After the consultation, we’ll help you set up your account and fund your new SDIRA.
3. Filing paperwork: We’ll help you draft your LLC operating agreement and file the necessary paperwork in your state, including federal filings prepared by our legal team. If you’re interested in real estate in a state other than your home state, we’ll also file the necessary paperwork in the other state.
4. Opening a business bank account: We’ll help you establish a bank or brokerage account tied to your LLC. 

Investment Flexibility With Checkbook Control

For some investors, an SDIRA is sufficient for investing in alternative assets, and working with IRA custodians for each transaction is not necessarily a drawback. However, you may prefer to take advantage of what an SDIRA LLC can offer if:

• You’re eyeing real estate investments.
• You prefer to have the signing authority over your investments.
• You want to maintain checkbook control over your retirement funds.
• You’re adept and comfortable with your investing strategies.

IRA custodians still help ensure you follow IRS guidelines when investing through an SDIRA or an SDIRA LLC. However, they cannot offer you investment advice or evaluate or verify an investment’s financial information. The account’s flexibility comes with a huge responsibility, which can be easier to manage if you have a sufficient investment background and experience.

Self-Directed IRA LLC FAQs

To help you identify if an SDIRA LLC fits your investment goals, consider the answers to these common questions:

What are the tax benefits of an IRA LLC?

Because the SDIRA is a tax-deferred or tax-free entity, your LLC investments won’t get taxed in most situations. However, your retirement funds and profits must flow through and back to the LLC’s account, not into a personal account. If you own a traditional SDIRA, your withdrawals may be subject to taxes, as you use pretax dollars for your contributions.

Who are checkbook IRAs for?

Checkbook IRAs are ideal for investors who want to manage their IRA accounts closely and are interested in alternative assets, such as:

• Precious metals
• Private equity
• Real estate
• Tax liens

You’ll also benefit from an SDIRA LLC if you’re an experienced, savvy investor who is unsatisfied with the returns and options available with traditional investments. Alternative investments may provide higher earnings. However, these investments also come with greater risks.

What types of investments can be made with an IRA LLC?

Alternative assets not included in the IRS’s list of prohibited transactions are generally allowed. These assets can include:

• Real estate: You may invest in commercial, retail or offshore properties. You may also consider real estate investment trusts (REITs), farmlands or short-term rentals.
• Private equity: Investing in private equity helps you fund a cause or projects you believe in. These include companies of all sizes.
• Precious metals: If you invest in the stock market, investing in precious metals can offer protection and diversification. Precious metals typically exhibit an inverse relationship with stocks, where their prices rise when stocks are down and vice versa. Metals you can invest in include gold, silver, platinum and palladium.
• Cryptocurrencies: Cryptocurrencies, such as Bitcoin and Ethereum, can be volatile. However, as a savvy investor, you may choose to invest in them with your SDIRA LLC.
• Private lending: You can use the SDIRA LLC to invest in debt-based assets, such as personal loans, business loans and car financing. You must have a written promise that outlines the interest rate and debt repayment timeline.
• Tax liens: If you know an owner who struggles to pay property taxes, you can purchase the lien on the property. Then the owner will pay you back for the lien, but with interest. If the owner cannot pay you back based on your time frame, you’ll get the property deed.

Are checkbook IRAs legal?

Yes, checkbook IRAs or SDIRA LLCs are legal. However, you must comply with the IRS’s rules to avoid additional taxes and penalties. The IRS mainly prohibits self-dealing transactions. However, it may not always be clear what constitutes these transactions. To protect your SDIRA’s status, you can work with Accuplan.

We can help you set up your LLC properly and file the necessary paperwork regardless of your targeted state. We’ll also help you navigate the complexities of the IRS rules, especially with particular assets.

What are the responsibilities of the manager of the LLC?

To directly control your investments, you will be the manager of your SDIRA LLC. You will be responsible for running this LLC — not the IRA custodian. Depending on your investments, your responsibilities may include overseeing daily operations, handling business finances and navigating legal concerns. You’re also responsible for filing annual reports and tax returns.

Before the LLC is set up, you need to come up with a name. This LLC will be a single-member LLC, as it should be fully owned by the SDIRA. The operating agreement should outline your duties and responsibilities as the manager.

What are prohibited transactions in a checkbook IRA?

The IRS specifically prohibits self-dealing transactions with disqualified persons. Disqualified persons include your family members, such as your ancestors, spouse, lineal descendants and any spouse of your lineal descendant. Self-dealing transactions benefit you or your family members directly. Examples include borrowing money from the SDIRA, selling property to it or purchasing property for personal use.

If you own a rental property, for instance, you and your family cannot live in it or use it for vacations. Your family members also cannot renovate or perform maintenance on any of your SDIRA LLC’s properties.

The IRS also explicitly prohibits certain types of investments, including life insurance policies and collectibles. IRAs are meant to help you save for retirement, while life insurance policies benefit the policies’ beneficiaries. These policies are also harder to value. Meanwhile, collectibles may be susceptible to personal enjoyment, which is a prohibited transaction. Examples of prohibited collectibles include:

• Alcoholic beverages
• Antiques
• Artwork
• Certain metals
• Coins
• Gems
• Rugs
• Stamps

Although not considered a self-dealing transaction, the SDIRA LLC also can’t invest in S corporation stocks due to the eligibility requirements of an S corporation. If an IRA invests in an S corporation and becomes a shareholder, the corporation can revert to a C corporation status, making it subject to corporate income tax.

Engaging in prohibited transactions disqualifies your IRA’s tax-advantaged status, and your entire IRA becomes taxable. If you’re under 59½ years old, you will also owe a 10% early withdrawal penalty. Additionally, you and any disqualified person involved in the transaction will be charged 15% of the prohibited transaction amount. If you fail to correct the transaction, you must pay an additional 100% tax.

What is UBIT, and how does it apply to checkbook IRAs?

Unrelated business income tax (UBIT) is the tax applied to the portion of the LLC’s investment income that comes from an active business. For instance, if the LLC invested in a restaurant, the restaurant’s earnings would be subject to UBIT. The income portion subject to taxation is known as the unrelated business taxable income (UBTI). This prevents SDIRA LLC investments from having an unfair advantage over other taxable businesses. You may apply relevant deductions to reduce your UBTI.

If the LLC borrowed money to acquire an investment, such as to purchase the restaurant, the portion of the income from that investment would be considered unrelated debt-financed income (UDFI). The UDFI is subject to UBIT.

Set up Your Checkbook IRA With Accuplan Today

We’re an SDIRA provider helping clients across 50 states, so you can trust us to help you set up an SDIRA LLC for your alternative investments. Whether you’re looking to purchase real estate properties, invest in precious metals or engage with cryptocurrencies, our experienced team can guide you through the process. We understand how complex the rules can be and the risks involved in handling your account. Our job is to equip you with the tools to help you grow your retirement funds to their full potential.

We’ve been working with clients for over 25 years, serving more than 10,000 accounts with over 40,000 unique investments. The $1.5 billion under our management speaks for the trust our clients have in our services. As professionals in the industry, we can help you protect the status of your SDIRA. Fill out an application today to get started.

Disclaimer: Our information shouldn’t be relied upon for investment advice but simply for information and educational purposes only. It is not intended to provide, nor should it be relied upon for accounting, legal, tax or investment advice.

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Operating a Checkbook IRA with Accuplan assisting you will forever change the way you invest. 

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Self-Directed IRA LLC FAQs

Here are the most common questions about opening and using SDIRA LLCs.