Combine the features of a corporation with the tax efficiency and flexibility of a partnership with an LLC. This retirement strategy allows you to truly diversify your portfolios while still maintaining control over your future.
Gain faster access to capital and investment opportunities with checkbook control.
Lower the custodian fees by handling day-to-day investments yourself.
Combine capital with other investors to invest in more lucrative assets.
A limited liability company (LLC) is a corporation where the company members are not personally liable for company debt. There are many benefits of an LLC, including pass-through taxation, asset protection, limited compliance rules, and less rigid management structures.
Many have heard about LLCs concerning the process of starting a business. However, investors can also invest in LLCs as part of their retirement plan with a self-directed IRA.
With this option, LLCs can be used to truly diversify investments through a variety of investment avenues, including:
Nevertheless, many people prefer investing in LLCs because it allows them to direct their money toward an industry or field they are passionate about. This flexibility can be a real selling point for certain investors.
While LLCs offer a wide variety of investment options, the IRS does prohibit investing in collectibles, life insurance, or S-corporations in IRAs.
LLCs do not offer any other tax benefits outside of the ones already available with self-directed IRAs. Because an IRA is already tax-deferred, investing through an LLC provides that same advantage, with a few caveats:
Investors using their IRA to purchase into an LLC must understand all IRS regulations. Investors should review all requirements with their CPA to ensure that the underlying transactions within the LLC comply with IRS code 4975 and are not considered prohibited transactions.
Without these tax rules, a business operating within a tax-deferred environment, such as an IRA or other tax-exempt entity, would have a competitive advantage over a business paying taxes on its business income.
To utilize a self-directed IRA LLC, an LLC will first need to be established. We recommend working with a local licensed and knowledgeable professional to do this.
In this process, you will decide if you want a single-member LLC or a multi-member LLC.
From there, a Tax ID Number (EIN) is required so that a business banking account can be set up in its name. SDIRA money will be used to fund this business checking account. IRA LLCs are sometimes referred to as “Checkbook Control” IRAs because they literally give you access to a checkbook connected to your business account that can be used to make investments. This allows for faster transactions, although for some investors that flexibility may seem a bit daunting.
We encourage our investors to do adequate research or contact a broker/financial advisor, attorney or CPA, to determine if an LLC is an appropriate investment.
Once you have determined that an LLC is suitable for you, it can be purchased with your Self-Directed IRA or another retirement account at Mainstar Trust. Click here to find out how to use a Mainstar Trust account to invest in an LLC.