A Self Directed IRA’s ownership of a LLC, or an ICO as it’s also called, is a special purpose limited liability company, which is either fully or partially owned by an IRA. Since the self directed IRA owns the ICO, IRA funds can be legally transferred to the ICO in exchange for shares of the ICO. After this funding, both traditional and nontraditional investments may be purchased by the ICO instead of directly in the IRA.
Part one is here.
Q. I currently have a real estate LLC, can I roll it over to a new IRA LLC?
A. That depends on a couple things, like if your IRA currently owns your LLC, then you can roll it over to a new IRA, but if the LLC is currently held outside of your IRA, then you must form a new LLC for your IRA. For a new LLC, you must create a specific operating agreement that meets the regulatory requirements in order to structure your retirement account in this way.
Q. Will I have to hire an attorney?
A. Most custodians will require that an attorney draw up the necessary paperwork to form an LLC, and with good reason. For one thing, the requirements for the language that must be used in the operating agreement are usually not known by the IRA account owner. For example, specific language regarding prohibited transactions and the application of IRS Code 4975 must be present in the documents, as well other language regarding UBTI (Unrelated Business Taxable Income) and capital contributions to the LLC. In addition, having an attorney draw up the documents associated with forming the LLC gives the client peace of mind that a professional is overseeing the development of the entity and that the process is being followed correctly.
Q. Why have an LLC instead of just having my self-directed IRA?
A. The number one reason for people is control, because you receive a tangible checkbook that is linked to a checking account that’s set up in the name of your LLC under its own tax ID number. So when you find an investment that you want to purchase, or if you own real estate and there’s a plumbing issue, you can just write a check. There’s no filling out paperwork, waiting to get approval from the administrator, or waiting for someone else to fund the investment, because you can easily take care of it yourself.