Navigating The IRA-Owned LLC

by Jeff Dixon, Sr. Business Development Manager

One popular option that a uDirect IRA Services account-holder can utilize is the IRA owned LLC, often referred to a “Checkbook IRA.” It’s one of the tools in your investor tool-belt, but how do you navigate the ins and outs?

The IRA-Owned LLC was created based on the case Swanson v. Commissioner in 1996.

To navigate properly, it is important to understand how this LLC gets created and used.

The following explains the process of obtaining an IRA owned LLC.  After you open an IRA with us and move your retirement funds into it, you will have a third-party create a special purpose LLC.  Your IRA  will own the LLC. You will be the manager of this LLC. You cannot create the LLC yourself, since you cannot provide goods or services to the plan, nor can you use an existing LLC. The IRA-Owned LLC needs to be a US LLC with a U.S. bank account.

Since you cannot create the LLC yourself, most of our account-holders use tax attorneys/ CPA’s. You will want to make sure the LLC is set up in compliance with IRS rules.  We have a list of professionals to provide. Just email us at info@uDirectIRA.com with your request.  This is not a list of companies we endorse.  Rather it is a listing of companies for your convenience.  

The owner of the LLC is in the name of the IRA, not your personal name. The titling you would use will be:  (Your name), legal owner via non-trust custodial IRA with AET.

Once the LLC has been created and filed with the state, you can open a checking account at the bank of your choice under the name of the LLC.  Since the IRA owns the LLC, you can direct us to move the funds in the IRA to the checking account.

Now when it comes time to buy an asset, you will buy it in the name of this LLC.

To set up a Self-Directed IRA with uDirect IRA Services there will be a $50 set up fee, a $275 annual fee and any wire fees for moving funds into the IRA and then from the IRA to the LLC. Wire fees are $15 in or out.

You will find a complete fee schedule HERE

When it comes to the cost of the LLC, state filing fees, etc., you would need to these matters discuss with the tax attorney/ CPA who set up your entity.

Please note that you must maintain a minimum of $325 in your uDirect IRA account in cash after funding the LLC.

The only function of this LLC is to buy and sell assets. If you want to move additional retirement funds into the LLC at a later point, you would have the funds sent into the LLC from your Self-Directed IRA account. We would move those funds to the LLC checking account.

If you need to take a distribution of the funds, you would wire money back to the IRA and then take the distribution from the IRA account. If you sent yourself a check from the LLC, that would be a prohibited transaction. Call us with your questions when you need a withdrawal and we will walk you through the process.

All the rules that apply to IRA transactions also apply to the IRA-Owned LLC. For example, if you want to use financing, you must use a non-recourse loan with no personal guarantees from you. Unrelated Debt Financed Income (UDFI) taxes would still apply, as would Unrelated Business Income (UBIT) taxes.  Discuss these taxes with your competent tax advisor in advance.

While the LLC gives you the ability to buy and sell assets without running the investment paperwork through a Compliance review, you are also forgoing the oversight of our experts.  Whenever you have questions about self-directed investing or about your account specifically, give us a call. We always enjoy talking with our account-holders.

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