A self-directed IRA may choose to invest in an LLC, but it's essential that the LLC complies with IRS rules. This is especially true in the case of rules on disqualified parties or prohibited transactions. It's also important to know that LLCs can generate revenues that could result in a tax liability for the IRA. The LLC can hold any alternative investment allowed by the IRS, such as gold, which is why it's important to research Gold IRA Custodian Reviews before investing. Alternative investment options are almost unlimited, but the IRS prohibits collectible items, life insurance and type S corporations.
An LLC owned by a self-directed IRA cannot invest in any investment that violates the IRC 401 (a) exclusive benefit rule. Self-directed investment in an LLC IRA should only be made for the sole benefit of the IRA (i.e., the LLC functions as its own personal IRA asset holding company). The IRA is 100% the owner of the LLC. IRA cash is invested in the LLC and remains under the IRA umbrella for tax treatment reasons.
You can act as an unpaid manager of the LLC and will have the authority to sign on behalf of the entity. This allows you to direct the capital of the LLC owned by the IRA to the investments you choose. An LLC owned by a self-directed IRA cannot invest in any investment that constitutes a prohibited transaction in accordance with IRC 4975, such as the purchase of real estate from the son or daughter of the administrator of the self-directed IRA LLC. You will only interact with the IRA account for the purpose of adding or removing capital from the IRA in the future; for example, to make contributions, make distributions, or transfer funds between this IRA plan and another.
An LLC owned by a self-directed IRA cannot invest in collectibles such as art, stamps, coins, alcoholic beverages, or antiques. The Tax Court held that it is not a transaction prohibited under Section 4975 of the IRC for a retirement plan to invest in and own 100% of a newly created corporation, nor for the owner of an IRA to serve as an official of that company without paying any salary or compensation to the owner of the IRA. A self-directed LLC IRA is simply a different investment model and a far superior tool to help build wealth for retirement. With most IRA plans, your investment options are limited to what the sponsoring company sells (usually publicly traded stocks, mutual funds, 26% bonds, insurance annuities, or bank certificates).
You can leverage your experience and network to put your IRA to work in your own community and increase your retirement savings with confidence. As described in the IRS guidelines, all expenses incurred by an asset owned solely by an IRA or other retirement account must be paid with that same account. IRC 4975 (c) (B) prohibits a self-directed LLC owned by an IRA from granting any “loan of money or other extension of credit” between a plan and a disqualified person. It's like having a more conventional IRA invested in a mutual fund, but you can be the fund manager.
A self-directed LLC IRA is also commonly referred to as a checkbook IRA, real estate IRA, or self-directed IRA with checkbook control. Despite the complexity of the law, your IRA can own 100% of the shareholding of an LLC and you, as the owner of the IRA, can be the administrator of this LLC. Prohibited transactions are transactions between an IRA and a disqualified person that benefit the disqualified person.