An IRA-Owned LLC (also known as a Checkbook Control LLC) is a type of limited liability company (LLC) that is owned by a self-directed IRA (Individual Retirement Account). This structure allows the IRA owner to have direct control over their IRA investments through the LLC.
The Process
Establishing an IRA-Owned LLC begins with opening a Self-Directed IRA (SDIRA) through uDirect IRA Services and transferring your existing retirement funds into this account. This step is crucial, as it forms the legal foundation necessary for your LLC to operate within IRS guidelines. Once your SDIRA is in place, the next step is to engage a qualified third-party professional—typically a tax attorney or CPA—to create a special-purpose LLC.
The IRS strictly prohibits IRA owners from creating the LLC themselves to prevent any conflicts of interest or prohibited transactions. The LLC must be established as a U.S. entity with a corresponding U.S. bank account to facilitate transactions. The professional you hire will draft an operating agreement for the LLC, outlining its structure, purpose, and operational guidelines, ensuring it complies with IRS regulations that govern retirement accounts.
Choosing the Right Professionals
Selecting the right professional to establish your IRA-Owned LLC is critical to the success of this strategy. uDirect IRA Services provides a list of recommended professionals for your convenience, although it is important to understand that these are not endorsements. The chosen professional should have a deep understanding of both IRA law and the complexities of operating an LLC in this context. They will draft a custom operating agreement that reflects your specific investment strategy and goals, thereby minimizing the risk of prohibited transactions and ensuring your LLC operates smoothly.
A poorly drafted operating agreement or inadequate legal advice can lead to costly mistakes, including the potential for prohibited transactions that could result in the disqualification of your IRA. Therefore, it is essential to work with professionals who are not only knowledgeable but also experienced in the nuances of IRA-Owned LLCs. For further assistance, you can contact uDirect IRA Services at info@uDirectIRA.com.
The client signs on behalf of both the IRA member and as the LLC manager.
Titling and Bank Accounts
Proper titling of your LLC is a critical step in maintaining compliance with IRS rules. The LLC is owned by your IRA, not by you personally, and this distinction must be clearly reflected in all documentation. This ensures that ownership of the LLC is attributed to the IRA and not to you as an individual, thereby preserving the tax-advantaged status of the retirement account.
Once your LLC is established and registered with the state, you will need to open a checking account in the LLC’s name. This account will be used to receive funds transferred from your IRA, enabling you to make investments directly from the LLC. The ability to write checks from this account provides the flexibility that makes the Checkbook IRA appealing to many investors, but it also requires a careful approach to ensure compliance with IRS regulations.
Conclusion
This structure can be an effective way to diversify IRA investments and actively manage them, but it requires careful management to stay within legal and regulatory guidelines.
uDirect IRA Services, LLC is here to help you~! We are not a fiduciary and we do not offer tax or legal advice. We do not recommend specific investments, rather we guide you through the process to self-direct your retirement savings into assets you choose. To get started, we offer a free consultation. Schedule yours HERE – To open an account, click HERE.
