Longboat Retirement Solutions LLC

What is a Self Directed IRA LLC? May 26, 2012

Filed under: Real Estate Investing,Uncategorized — larsfforsberg @ 5:45 pm
Tags: , ,

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.

Rollovers

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.

 

What is a Solo 401k?

A Solo 401k is a retirement savings plan designed for self employed individuals.

Solo 401k Advantages

A Solo 401k plan possesses most of the characteristics of the Self Directed IRA LLC, including having the ability to invest in anything the law allows, but without the need to establish an LLC. It’s the most tax-advantaged, self employed plan available with very high annual contribution limits. You can set up this plan even if you’re employed at a full-time job. And, you can borrow funds from the account.

3 Simple Steps

Is setting up a Solo 401k a difficult?  No.  Longboat has made the process simple and quick.

  • STEP 1: Solo 401k documents are produced by Longboat and delivered to you.
  • STEP 2: You establish a local bank account to receive existing funds or contributions.
  • STEP 3: As Trustee, you determine best investment options and execute transactions.

Self Trustee

With a Solo 401k, you act as your own Trustee and are charged with investing trust assets prudently and productively. The Trustee cannot co-mingle personal funds with the trust and cannot enter into a transaction with the trust.

Rollovers

You can rollover funds from Traditional IRAs, SEP Plans, previous employer 401k plans, Money Purchase plans, Profit Sharing plans, Keogh plans, Defined Benefit plans, 403(b) plans and Rollover IRAs to initially fund your Solo 401k. You do this by setting up a Trust account for the Solo 401k and directly transferring the funds from the Custodian to the trust bank account.

Making Contributions

For the salary deferral portion in 2011, you can contribute the regular 401k maximum of $16,500 (with an an additional $5,500 if over the age of 50 at year end). And, you can add up to 25% of compensation for the profit-sharing portion. The combined maximum of these contributions can’t exceed $49,000, plus catch-up additions, if applicable. You could also set up a “designated Roth component”, if you desired.

Taking Out A Loan

Our Solo 401k plan document has a loan provision enabling you to take out a loan from your 401k. You can borrow up to 50% of the total 401k value up to a maximum of $50,000, tax free. Repayment of the loan is according to a loan amortization schedule created when the loan is initiated and must be paid back into the account (including interest). It is a simple process with no cost to you, through Longboat software, to create the loan documents.  Failure to make the loan payments may cause a loan default causing taxes and IRS penalties.

A Solo 401k is Not Subject to UDFI Tax

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.  Solo 401k plans are exempt from this tax.