What is a Self Directed IRA LLC? May 26, 2012
Many Wall Street brokerage firms and custodians use the term Self Directed IRA to describe their programs that limit your investment choices to products that they sell. When Longboat Retirement Solutions uses the same term, it means you can invest into any asset allowed by the Internal Revenue Code. The only investments not allowed are collectibles and life insurance.
This structure allows an account holder to completely control investments with increased flexibility and reduced operational costs compared with operating out of a custodial account.
The LLC Formation
Longboat assists clients with creating Articles of Organization for an LLC with the state in which the LLC is to be operated. It is considered a business entity structure which is a hybrid combining aspects of both a partnership and a corporation.
After the IRA is moved into the LLC, it authorizes the Manager (generally the IRA account holder) to set up a checking account that will be utilized for making investments. The Manager of the LLC can enter into contracts and agreements on behalf of the LLC.
You can rollover funds from Traditional IRAs, Roth IRAs, 401k Plans, 403b Plans, Money Purchase plans, Profit Sharing plans, Keogh plans, Government Eligible Deferred Compensation Plans, ESA Plans, HSA Plans, Qualified Annuities and more to initially fund your IRA LLC. You do this by setting up a account for the IRA LLC and directly transferring the funds from the Custodian to the newly created IRA LLC bank account.
Investing in Real Estate
The Longboat client can now make an offer, negotiate a deal, and acquire real estate. Once real estate is acquired, the client can handle administrative duties or appoint a property manager.
Income-producing properties can provide your plan with monthly income as well as long-term gains through appreciation. There are no limitations on the types of properties that can be held within your Real Estate IRA.
Real Estate has always been permitted inside IRA retirement accounts under the Employee Retirement Income Security Act of 1974 (ERISA). As your IRA LLC funds grow, you can continue to invest.
Contributions are made to the Self Directed IRA Custodian and invested into the IRA LLC. Distributions are initiated via sales of LLC shares to the Custodian.
Income to an IRA associated with the financed portion of a property purchased using a non-recourse loan is subject to the Unrelated Debt Financed Income (UDFI) tax. UDFI is a type of unrelated business taxable income.