You may know that you want an LLC within your Self-Directed IRA. Doing so gives you the possibility of a checkbook within the LLC, which is held within the IRA—giving you the ability to make investments within an IRA from the power of a checkbook. That’s easy enough to gather. But what about setting up that LLC the right way? What are the basic steps for setting up your first LLC for your IRA, and how might a Self-Directed IRA administration firm help? Here are some key points you’ll want to know before getting started.
Step 1: Choose a Custodian and Understand the Rules
Before diving into the setup process, we recommend setting this as step one: choosing. Choose IRA custodian who allows for Self-Directed IRAs with checkbook control. Not all custodians provide this level of flexibility, after all. So finding one that specializes in this service will be key to ensuring your LLC is set up correctly. You’ll also need to familiarize yourself with IRS rules regarding Self-Directed IRAs to avoid any prohibited transactions, which could result in significant penalties. This might sound like a lot of work, but it’s mainly a process of familiarization—you’ll start to get your footing as you figure out what your limits are.
Step 2: Create Your IRA LLC
Once you’ve chosen the right custodian, the next step is establishing the LLC itself. Why an LLC? It’s the entity that will hold your IRA assets. This will give you the ability to make investments directly from your IRA without needing custodian approval for every transaction. It’s a smooth, flexible way to invest retirement assets.
Your LLC has to be created in compliance with both federal and state laws, and its operating agreement needs to specifically outline that the LLC is owned by the IRA—not by you personally. This distinction is critical for maintaining the tax-deferred (or tax-free, in the case of Roth IRAs) status of your retirement investments, which helps you prevent unforeseen fees or penalties.
Step 3: Fund the LLC with Your IRA
After legally forming the LLC, you’ll need to fund it by transferring the money from your Self-Directed IRA into the LLC’s bank account. This transfer is what gives your LLC the “checkbook control” you’ve heard so much about. From here, you can make investments directly from the LLC’s account—whether it’s real estate, private loans, or other alternative investments allowed under the IRS’s rules for Self-Directed IRAs.
Step 4: Maintain Compliance and Keep Accurate Records
Once your LLC is up and running, compliance should be the next big issue on your mind. True: checkbook control offers tremendous freedom, but it also comes with the responsibility of ensuring all transactions remain compliant with IRS rules. You’ll need to keep meticulous records of all transactions and ensure that no disallowed transactions occur, such as buying personal property or engaging in self-dealing.
A Self-Directed IRA administration firm can help with document preparation, ensuring compliance, and even providing ongoing support as your investment strategy evolves. They can guide you through the puzzle of structuring and maintaining an IRA LLC while keeping you informed of any regulatory changes. And as it turns out, it’s not as difficult as you might have imagined.
Want to learn more about setting up an LLC that can guide you through retirement? We’ll be happy to share what a Self-Directed IRA LLC can do, and how you can set one up the right way. We recommend you get in touch with us here at TurnKey IRA by dialing 844-8876-IRA (472).
