Navigating the Ins and Outs of an IRA-Owned LLC with uDirect IRA Services
Introduction
Looking to maximize your retirement savings? The IRA-Owned LLC, commonly known as the “Checkbook IRA” is a unique tool. This investment vehicle, established based on the Swanson v. Commissioner case in 1996, provides a blend of control and flexibility. But how exactly does one navigate its setup and use? Let’s explore.
Setting Up Your IRA-Owned LLC
The Process
The journey begins with opening an IRA with uDirect IRA Services and transferring your retirement funds into it. Then, a third-party, usually a tax attorney or CPA, is engaged to create a special purpose LLC. It’s important to remember that you cannot create this LLC yourself, as IRS rules prohibit providing goods or services to the plan. This LLC must be a US entity with a U.S. bank account.
Choosing the Right Professionals
Since you cannot create the LLC yourself, selecting the right professional is crucial. uDirect IRA Services provides a list of professionals for convenience, not endorsement. These experts will set-up your IRA-Owned LLC and as a result, your IRA will have an LLC that is compliant with IRS rules. For assistance, contact info@uDirectIRA.com.
Titling and Bank Accounts
The LLC is owned by your IRA, not you personally. When titling the LLC, it’s “(Your name), legal owner via non-trust custodial IRA with AET.” Once the LLC is established and registered with the state, you can open a checking account under its name. Funds from the IRA can then be transferred to this checking account.
Utilizing Your IRA-Owned LLC
Investment and Costs
When investing, purchases are made in the name of the LLC. The initial setup with uDirect IRA Services includes a $50 setup fee, a $275 annual fee, plus wire fees. State filing fees and other costs associated with setting up the LLC should be discussed with your tax attorney or CPA.
Maintaining Minimum Balance
Because it’s a good thing to have a pad for account fees, it’s crucial to maintain a minimum balance of $325 in your uDirect IRA account after funding the LLC.
Additional Investments and Distributions
Adding to the LLC is easy to accomplish For additional investments, funds are transferred from your IRA to the LLC checking account. For distributions, funds are wired back to the IRA before withdrawal. Direct withdrawals from the LLC to you personally are considered prohibited transactions.
Compliance and Oversight
Tax Considerations
All IRA transaction rules apply to the IRA-Owned LLC. If using financing, it must be a non-recourse loan without personal guarantees. Taxes like Unrelated Debt Financed Income (UDFI) and Unrelated Business Income (UBIT) still apply. Discuss these with your tax advisor in advance.
Forgoing Compliance Review
While the LLC offers freedom to buy and sell assets without a Compliance review, it also means forgoing the oversight of uDirect IRA Services experts. However, they are always available for consultations and guidance.
Conclusion
The IRA-Owned LLC offers a unique opportunity for investors using uDirect IRA Services to have direct control over their retirement investments. While it provides flexibility and potential for growth, it’s accompanied by responsibilities like ensuring compliance with IRS rules and managing the associated costs. As always, consulting with financial and tax professionals is highly recommended to navigate this sophisticated investment tool effectively.
Learning as much as you can about the IRA-Owned LLC will help you have a better experience. You can read more HERE.
