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Limited Liability Companies (LLCs)

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.

Move faster

Gain faster access to capital and investment opportunities with checkbook control.

Save costs

Lower the custodian fees by handling day-to-day investments yourself.

Pool assets

Combine capital with other investors to invest in more lucrative assets.

What is an LLC?

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.

Tax Advantages of an LLC & Implications

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:

  • Operating agreements: LLCs have operating agreements that determine company policies, procedures, and priorities. This hybrid form of business combines the protection of a C-Corp with the tax advantages of a partnership.
  • Unrelated Business Income Tax (UBIT): If the LLC invests in an active, operating company the IRA may be subject to Unrelated Business Income Tax (UBIT).

    If an investment is deemed to generate income that is not substantially related to the tax-exempt purpose of an IRA (i.e., saving for retirement), that income may be taxable in the year it was earned.

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.

How Do IRA LLCs Work?

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.

  • Single-member LLCs: With a single-member LLC, you fund the LLC with your own IRA funds. In a single-member LLC, there are no separate taxes to file with the IRS since there is just one owner.
  • Multiple-member LLCs: If you choose a multiple-member LLC, you can pool your money with other investors in order to invest in more lucrative investments. A multiple-member LLC must file a tax return and provide members with a K-1 to file with their returns.

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.

How To Invest With LLCs

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.

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