What is a Self-Directed IRA?

A Self-Directed IRA is an IRA that allows the IRA owner to pick the investments.  Because the IRA trustee or custodian does not pick the investments, the IRA owner takes on the risk.  Some of the investments that Self-Directed IRA owners direct their IRAs into are real estate, LLC and precious metals, to name just a few.


What is a Self-Directed IRA LLC?

Commonly referred to as a Checkbook IRA or IRA LLC, when an LLC is 100% owned by an IRA or combination of IRAs, it is referred to as a Self-Directed IRA LLC.  While the IRA owns the LLC through the purchase of member units, the same prohibited transaction rules applicable to the Self-Directed IRA apply to the IRA owned LLC.


Why open a Self-Directed IRA LLC?

Alternative Investments:  Since the early 2000s the Self-Directed IRA owned LLC has grown in popularity as the common form of entity for placing real estate purchases, tax liens, precious metal, trust deeds, promissory notes and private placements, to name a few.

Checkbook Control over the IRA:  A Self-Directed IRA owned LLC puts the IRA participant in control in placing the self-directed investments as the names LLC manager.  The LLC investments can be processed by check or wire and are titled in the name of the LLC, not in the name of the IRA.

Reduce IRA Custodian Fees and Timely Process Investments:  After investing the Self-Directed IRA in the LLC, as the manager start placing alternative investment purchases by writing checks or wiring funds from the LLC bank account.  As a result IRA custodian processing fees and holding fess are greatly reduced and holt times are eliminated.


How is a Self-Directed IRA LLC established?

First, a Self-Directed IRA is created by completing and signing the IRA plan agreement provided by the IRA custodian.

Second, the former employer retirement plan or IRA funds are transferred to the new Self-Directed IRA custodian.

Third, TurnKey IRA drafts the Self-Directed IRA LLC operating agreement including specific IRA regulatory language, registers the LLC with the state and obtains EIN for the LLC from the IRS.

Fourth, the Self-Directed IRA LLC owner opens a bank account at his or her local bank.

Fifth, LLC investment directive along with the LLC documents are submitted to the custodian who then in-vests the IRA funds in the LLC by wiring the funds to the LLC bank account.

Finally, after the LLC bank account is funded, the manager of the LLC begins placing alternative investment purchases.


How long until my IRA LLC is setup and funded?

The LLC funding process generally takes 7 to 14 business days.


Can I rollover/transfer my former employer retirement plan and/or IRAs into the IRA LLC?

Yes, former employer retirement funds and/or existing IRAs may be transferred/rolled over to a Self-Directed IRA and subsequently invested in the IRA LLC.

Important:  SIMPLE IRA funds may not be transferred to an IRA LLC until two years has passed since the SIMPLE IRA was first funded.  This a SIMPLE IRA rule.


Does my Self-Directed IRA need a customized LLC?

Yes, the Operating Agreement for a LLC that works with retirement plans needs to be ERISA compliant.  That means that it has to be structure in such a way that it abides by all the tax regulations that affect retirement plans.  If the Operating Agreement is not structure properly, it could result in heavy fines and possible dissolution of the plan itself.


Can I get my lawyer to write up the customized LLC?

Yes, here at TurnKey IRA we worked with a top ERISA attorney to construct an Operating Agreement that is fully compliant with tax regulations.  Your own lawyer can do the same.  However, the hours involved in the necessary research and development are normally not cost effective for a private investor.  In that sense, Turn Key IRA has already done the work for you and you can take advantage of that expertise at a competitive price.


Can I see the Operating Agreement used for the LLC?

Yes, every TurnKey IRA client gets a personal copy of the Operating Agreement.  When you receive it, you will read it, sign it, and then put it away for safekeeping.


If I open a Self-Directed IRA, am I the only director or stakeholder in my LLC?

Yes, as a client, you are the sole manager of your LLC, and you are the only person authorize to make decisions on its behalf.  No other person or organization has any discretion over your LLC or its contents.


What types of retirement accounts can be structed as an IRA LLC?

As a general rule, you want to make sure that your retirement plan can be rolled over or transferred to another custodian before moving forward in getting an IRA LLC.  Once you have established that you are eligible, most types of retirement plan can be converted into an IRA LLC, here is a list of the most popular:

Traditional IRA                         Thrift Savings Plan

Roth IRA                                     401(k)

SEP IRA                                       403(b)

SIMPLE IRA                                 457


Can my IRA LLC purchase an interest in a Subchapter S Corporation?

No, according to IRS Letter Ruling 199929029, April 27, 1999 IRAs are not qualified as investors in Subchapter S Corporations.


What is the difference between buying real estate or any other investment for me or for my IRA LLC?

When you make an investment with your IRA LLC you will want to make sure that the asset is titled in the name of your entity.

Make sure all the expenses come from the IRA LLC and all the revenue flows to the IRA LLC.

Also, you will always want to make decisions in the best interest of the IRA LLC because once you become manager of your IRA, you become a fiduciary.  One tactic to help you get on the right thinking track would be to imagine you are managing your deceased friends estate for his/her children, instead of your IRA.


Can I partner with my spouses IRA or another disqualified person within the LLC?

Yes, in Swanson vs. Commissioner Swanson’s IRA  was partnered with the IRAs of his 3 children and Swanson was the director of the company (Swanson won the case).

However, if you are going to make your LLC owned by multiple members (whether they are disqualified or not), the IRA LLC will become disqualified for any additional IRA capitalization as where an LLC owned 100% by one IRA becomes a part of the IRA and you are allowed to make annual contributions to the entity (see DOL Advisory Opinions 97-23A and 2005-03A).

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