How to structure an LLC with a Self-directed IRA


By Jim Ingersoll

Self-Directed Retirement Plan Investing Using an LLC Structure

Offers Maximum Flexibility & Protection for Active Investors

 


 

Did you know that you could purchase real estate, lend your money like a bank in notes and mortgages, purchase franchises or private equity in businesses and still have a brokerage account?  Since 1974 and ERISA (Employee Retirement Income Security Act), you have been able to do this, but your broker and your banker will never let you know!  Your broker and banker would lose commissions and income if you moved your assets from a brokerage account to any of the alternative investments mentioned.

 

Traditional retirement accounts have lost trillions of dollars in the past few years, causing many savvy investors to seek alternative ways to invest their retirement portfolios.  In increasing numbers, this search is leading to self-directed investing – a rapidly growing trend that enables you to have complete control over selecting and directing your own IRA, SEP or 401k investments. 

 

How do you take advantage of these alternative investments?  You can choose a self directed custodian or an administrator (who works with a custodian).  Is it legal to move your IRA or rollover your old 401k to another custodian?  Yes it is.  Just as you could move your IRA account from Fidelity to Morgan Stanley, you are simply changing custodians.  The change to a true self directed custodian allows you to take advantage of alternative investments.  But not all custodians are alike – some allow you to invest in real estate, some do not.  Some allow you to invest in real estate and finance it and others do not.  To finance you would need to find a non recourse lender, where the only recourse for the lender if you default is to take the property and not come after you personally or your IRA.

Choosing a self directed IRA administrator to place the assets of your IRA in a Limited Liability Company (LLC) which holds title to the assets, can give you the ultimate flexibility in investing.  The LLC is thus the purchaser of any investment the IRA makes.

 

The LLC structure offers investment flexibility by simplifying asset titling and allowing for immediate response to investment opportunities.

 

The LLC structure also facilitates the pooling of assets with other investors, or with the account owner’s discretionary investment money.  Pooling opens the door for self-directed investors to participate in larger investment opportunities.

 

Finally, the LLC structure offers an additional layer of protection for the Retirement Plan’s assets.

 

Most of the self directed IRA companies are custodians and not administrators.  Custodians, as the fiduciary of your IRA funds, are not allowed to set up an LLC structure directly.  The client would have to search for an ERISA lawyer. Setting up an LLC structure through a lawyer who is not familiar with ERISA rules and the results can be very damaging. The IRA/LLC structure must comply with ERISA rules and many of the lawyers who set these up without ERISA experience, are unable to advise their clients on the types of investments that are allowable by the IRS.  If the IRS decides to do an audit, you could pay severe penalties and taxes if you’re not in compliance. Investors beware – you must do your homework and find a self directed administrator that understands ERISA rules and reviews them with each transaction. If you choose the route of a custodian, then be sure to find a lawyer with ERISA experience and be prepared to pay for their knowledge, and you will need to have the lawyer review your transactions for compliance.

 

The IRA/LLC structure also allows investors to invest in anything allowable by the IRS.  Gold is a popular investment and a commodity that has limited resources. There are custodians who will not allow for investments in gold.  The IRA/LLC structure allows you to invest in anything allowable by the IRS. Detailed reviews of each proposed transaction to ensure its compliance with IRS and ERISA rules are very important.  Custodial companies review transactions internally for company acceptance and not so much with the client’s investing in mind.  The IRA/LLC structure is the most elegant and flexible structure for an investor who wants to take advantage of all the investments that are allowable by the IRS and ERISA.

 Guest contributor:

Satchie Carvounis

Regional Manager

Security Trust Company

“Unleash the Power of Your IRA”

www.securitytrustcompany.com

satchie.carvounis@securitytrustcompany.com

301-356-8989 

 

 

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