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Self Directed IRA Investments - Single Member LLCs

Single Member LLC in an IRA

Single member LLCs in an IRA (aka Checkbook IRA) have been identified as high risk with regard to Internal Revenue Code Section 4975, 408, 408A, and other applicable codes. While having a Single member LLC in your IRA can provide some flexibility when it comes to investing IRA funds, it requires greater responsibility on the part of the IRA holder. As the manager of the LLC, you are responsible for the legality of your LLC's actions and that they adhere to IRS rules for IRAs. Keep in mind, you may do everything "right" and still be at risk for IRS sanctions.


Benefits of a Single Member LLC In an IRA

  • Speed with which you can disburse funds from your IRA
  • No outgoing check fees
  • Ability to invest in any asset that the IRS allows
  • Easily move LLC assets to the iRA for distribution

Single member lLC - Important Things to know

  • You may only fund the LLC from the IRA once. If the LLC needs money in the future, a non-disqualified person (learn more) is needed.
  • Responsibility for the bookkeeping that the IRA administrator would have been doing on the IRA assets shifts to the LLC manager.
  • Titling on the assets is in the name of the LLC, not the IRA.
  • All IRS rules associated with the IRA must be followed by the LLC.
  • The IRS prefers to have a buffer between the IRA holder and the IRA's assets. Usually, this is the IRA provider. This structure, however, circumvents that arrangement. This is why New Direction IRA requires an Attorney Opinion letter.
  • Swanson vs. the Commissioner is the court case that most people reference when discussing the legality of this arrangement.
  • The IRA holder (who, in this case, is also the LLC manager) is responsible for performing due diligence on the assets being considered.
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Self Directed IRA educational videos - Single Member LLC in IRA

Swimming With Sharks – Self-Directing via Checkbook IRA/LLC with Care

Swim with the sharks and the IRS might think you are one. You’ve heard of Checkbook Control IRAs, they can be appealing, but learn about how others are abusing it. Discuss strategies to stay out of, or to get out of the path of Aggressive IRS monitoring of retirement plan schemes. A New Direction expert will also cover the “ROBS” strategy. This class can save you thousands of dollars and eliminate the target on your back!

Checkbook IRA and closely held structures for IRAs

  1. Single member LLC or corporation where the IRA owns/is 100% member/shareholder of the entity. This structure is what is known as a Checkbook IRA.
  2. Multiple member LLC or corporation where the aggregate ownership of the entity is composed, 50% or more, of IRA accounts owned by disqualified persons, and the IRA holder or other disqualified person acts as the manager for this entity.
  3. Multiple member LLC or corporation where aggregate ownership of the entity is composed, 50% or more, of IRA accounts owned by disqualified persons and/or disqualified persons’ investment of non-IRA funds, and the IRA holder or other disqualified person acts as the manager for this entity.
  4. In addition to 1 through 3 above, the term “high risk investment” also includes entities where the controlling interest is held by a disqualified person or persons. Such controlling interest shall be defined as the aggregate of all disqualified persons participating in the entity.

Rules and Responsibilities for Closely Held Entities with New Direction IRA

  • It is the IRA holder's responsibility to effect the creation of the LLC or other entity. The IRA holder can have a professional perform this task or they can do it themselves. The IRA holder is responsible for adhering to laws that apply to entities in the state in which the LLC is created. The entity document must not contain language that disallows ownership of shares by an IRA.
  • As the manager of your IRA's LLC, you must file tax returns for the entity, file annual reports, and pay reporting fees to the Secretary of State. Filing 1099s or other IRS reports may also be necessary. Remember to keep in mind that the requirements for an LLC owned by your IRA are the same as any other business entity.
  • At the time the IRA makes the investment, ownership or control of the LLC must not be associated with the IRA holder or any disqualified person. Appointing a disqualified person as manager must take place after the entity has been funded.
  • You must have an Attorney Opinion letter. The Attorney's Opinion letter must affirm that according to IRC SSC 4975, the funding of this structure does not constitute a prohibited transaction.
  • The minimum investment for a closely held entity is $25,000. This is New Direction IRA's guideline and not an IRS issue. In addition, a minimum balance of $500 is required to be kept in cash in the IRA account at all times after funding.
  • There may be no compensation paid to the manager or trustee of the entity if the IRA holder or disqualified person is the manager.
  • Taking a distribution directly from your entity is a prohibited transaction. Distributions must go through New Direction IRA so we can record the distribution properly.
  • Entity assets can be moved from the entity back into the IRA proper.

Step by Step Guide to Checkbook IRAs

Step 1 – Open and Fund your IRA – It takes New Direction IRA two business days to open your account once your application is in the office.  Then you will fund the account with a rollover, transfer, and/or contribution.  This may take several weeks, so plan for that in your timetable.

Step 2 – Create the entity.

Step 3 - Fill out a Buy Direction Letter and assemble entity documentation. Submit these to NDIRA .

Step 4 – Name yourself manager of the entity. Take the funding check and the entity documentation to a bank. Open a checking account in the entity's name.

Learn about New Direction IRA Single Member LLC Fees.

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