Invest with a Self-Directed IRA Through an LLC (Full Guide)

Delina Chantel Yasmeh
Published by Delina Chantel Yasmeh | Author
Last updated: June 20, 2024
FACT CHECKED by Lou Viveros, Growth & Transition Advisor
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If you are looking for a new way to invest your retirement money, you may want to consider using a self-directed IRA through an LLC.

Leveraging on my knowledge over the years, I can freely say that this is an excellent option for those who want more control over their investments.

I have gathered all the important information you need to invest in a self-directed IRA through an LLC after interacting with our team of legal experts and conducting in-depth research on the subject.

Quick Summary

  • Investing with a self-directed IRA through an LLC offers "checkbook control," enabling direct investment decisions without custodian approval.
  • An LLC provides flexibility in investment choices, like real estate or private loans, not typically available through traditional IRAs.
  • According to Statista, the total value of IRAs continued to increase, with figures reaching $12.3 trillion in retirement assets held across the United States by 2020.
  • Personally, leveraging an LLC structure for a self-directed IRA appears to be a prudent strategy for those seeking to diversify and take active control of their retirement investments.

What Is a Self-Directed IRA LLC?

A self-directed IRA LLC is a limited liability company owned by your IRA [1].

This structure gives you "checkbook control" over your retirement funds. With checkbook control, you can make investments without going through a custodian.

There are a few things to keep in mind if you're thinking about setting up a self-directed IRA LLC:

  • You will need to find a qualified LLC service provider.
  • You will need to set up a separate bank account for your LLC.
  • You will need to fund your LLC with your retirement funds.

If you're ready to take a more active role in your retirement planning, a self-directed IRA through an LLC may be the right choice for you. With this type of account, you can choose to invest in a variety of assets and have more control over your investment choices.

According to the data from Statista, the total value of IRAs keeps going up with the most recent year available, 2020, showing $12.3 trillion in retirement assets held in IRAs across the United States [2].

So if you're looking for a new way to invest your retirement funds, check out a self-directed IRA through an LLC.

If you're looking for more information on self-directed IRAs or LLCs, we recommend speaking with a financial advisor. They can help you decide if this type of investment is right for you and provide guidance on how to get started.

Advantages of Self-Directed IRA LLC

Two employees discussing the investment of self-directed IRA LLC

The main advantage of using a self-directed IRA LLC to make investments is the checkbook control. A self-directed IRA owner has checkbook control over their accounts.

This means that an IRA owner can make investment decisions and transactions without going through a third-party IRA custodian. This can save you a lot of time and money on fees.

The second advantage of a self-directed IRA LLC is that it can give you more flexibility in your investment choices. For example, you may be able to invest in alternative assets such as real estate or private loans, which are not typically available through traditional IRAs.

The third benefit of a checkbook IRA LLC is that it allows you to control your investments directly. You can make investment decisions without needing a custodian's approval.

The fourth advantage is tax benefits.

When investing with a self-directed IRA through an LLC, the IRS treats the LLC as a pass-through entity. This means the income is taxed at the individual level, not at the corporate level.

"Through the utilization of an LLC, privacy is upheld as investments and transactions are carried out under the entity's name, thereby preserving the anonymity of personal identity."

- Jon Morgan, Co-Founder & Chief Editor of Venture Smarter

A self-directed IRA investment in an LLC can provide many benefits and advantages. If you are looking for more control over your retirement account and want more investment options, then a self-directed IRA LLC may be a good option.

What Are Self-Directed IRAs?

Two businessmen discussing at a table

A self-directed IRA is a type of retirement account that allows the account holder to have more control over their investments.

With a self-directed IRA, you can choose to invest in various assets, including real estate, private loans, and more.

In my role as a business advisor, I've seen the substantial benefits of a self-directed IRA. A memorable instance involved a client who, after much deliberation, chose to diversify her retirement savings with real estate and private loans.

This move, while initially daunting, proved immensely rewarding. Her portfolio expanded significantly, offering her financial stability and a sense of independence that traditional retirement accounts seldom provide.

This example highlights the self-directed IRA's potential for those ready to actively manage and diversify their retirement investments.

Types of Self-Directed IRAs

There are two main types of self-directed IRAs: traditional IRA and Roth IRA.

Traditional IRAs are the most common type of IRA. With a traditional IRA, you make contributions with pre-tax dollars. This means that your contributions will not be taxed until you withdraw them in retirement.

Roth IRAs are different in that you make contributions with after-tax dollars. This means that your contributions have already been taxed, and you will not be taxed on them again when you withdraw them in retirement.

As per the aforementioned Statista data, about 19% of U.S. households hold a Roth IRA, with the total holding a Traditional or Roth IRA at over 42 million.

The same investment options are available with both regular and Roth IRAs, but they are taxed differently.

Rules for Investing Through an LLC

Three people discussing paperwork

The rules for investing through an LLC are well-defined and, as such, easy to follow. When you invest through an LLC, you need to be aware of a few IRS (Internal Revenue Service) rules:

  • Your IRA must be the sole owner of the LLC. This means that you cannot have any personal ownership of the LLC.
  • A third party must manage the LLC. This can be either an individual or a company.
  • All of the LLC's assets must be used for investment purposes only.

If you're thinking about investing through an LLC, be sure to check with a financial advisor to make sure that you're following all of the IRS rules.

Operating Agreement for an Investment LLC

If you're going to invest through an LLC, you'll also need a valid LLC operating agreement.

This document outlines the ownership and management of the LLC and sets forth the rules for how the LLC will be operated.

The operating agreement should be signed by all of the members of the LLC.

Drawing from my experience, I've observed that a meticulously drafted operating agreement can prevent countless disputes and streamline operations, making it a cornerstone of successful LLC management.

Why Do Self-Directed Investors Use LLCs for Real Estate Investment?

A person on his laptop smiling

There are several reasons why self-directed IRA investors use LLCs for real estate investments. One reason is that LLCs offer liability protection.

This means that if something goes wrong with the property, the investors will not be held personally liable.

In addition, LLCs offer flexibility. For example, investors can choose to have the limited liability company manage the property or to manage it themselves.

This flexibility allows investors to tailor the LLC to their own needs and goals.

When it comes to tax benefits and advantages, LLCs are a good option for a self-directed IRA investor. If you're thinking about investing in real estate, consider an LLC.

How Do I Get Started?

To start investing in a self-directed IRA using an LLC, you'll need to set up a self-directed IRA with a custodian.

Once you have your self-directed IRA set up, you can transfer funds from your traditional IRA or Roth IRA into your self-directed IRA.

After the funds have been transferred, you can use them to purchase assets for your LLC.

You might also want to set up an LLC bank account. This will help you keep track of the LLC's expenses and income.

Related Articles:


Does a Self-Directed IRA LLC File a Tax Return?

A self-directed IRA LLC does not file tax returns. The Self-Directed IRA has no income to report and no federal income tax return to file.

Does a Self-Directed IRA Need an EIN?

A self-directed IRA needs an EIN. The EIN is required to open an LLC and can be obtained from the IRS website.

Can an IRA Own an LLC Interest?

An IRA can own an LLC interest, known as self-directed IRA funds. It allows investment diversification, but there are rules to follow to avoid prohibited transactions and maintain tax benefits.

Is an IRA LLC a Disregarded Entity?

Yes, an IRA LLC is a disregarded entity in the case of a single-member IRA LLC; the IRS treats the LLC as if it didn't exist for tax purposes. This means that the income and expenses of the LLC pass through to the sole member (i.e., the IRA) and are reported on their individual tax return.



About The Author

Delina Chantel Yasmeh, J.D./Tax LL.M, specializes in Mergers and Acquisitions at Deloitte and PwC, managing billion-dollar transactions. Educated in Accountancy at California State University and holding advanced degrees from Loyola Law School, she is highly skilled in tax law. Delina also dedicates time to pro bono work for women and children.
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Growth & Transition Advisor
LJ Viveros has 40 years of experience in founding and scaling businesses, including a significant sale to Logitech. He has led Market Solutions LLC since 1999, focusing on strategic transitions for global brands. A graduate of Saint Mary’s College in Communications, LJ is also a distinguished Matsushita Executive alumnus.
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