1. If I understand the SDIRA, without an LLC I have to wait for the custodian to approve a transaction in addition to them charging me fees..correct?
If that's the case is there a reason not to have an LLC?
2. If I purchase an income property and collect rents, can I take those rents and use them to pay down the investment home or use them in another manner or do they have to sit until disbursement at 59 1/2 year?
Having a custodian-only solution means having a 3rd party process every expense and income transactions. That means paperwork, delays, and per-transaction fees.
For a static investment like a fund or private stock, that can work OK.
Real estate is not static, and requires checkbook control. You can't wait a week to have your custodian pay a plumber, for example. Timing is critical in real estate so you need the checkbook in your hands, never mind the headache and fees of the 3rd party.
For a California based investor, I would recommend an IRA owned trust to obtain checkbook control as opposed to a LLC. Even an out-of-state LLC will have a California footprint for income reporting and taxes if you are a resident of the Golden State. A trust will not if structured properly.
Any income produced within the IRA must stay within the IRA. Rental income to your IRA is no different than dividend income from a stock in that sense. You can use the accumulated rents to make other investments and compound the growth of your tax-sheltered savings.
Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
5y
If I were buying rentals in a SDIRA (I wouldn't) then I would definitely do it with a checkbook control IRA. Which is basically what you're describing. Having the custodian run every transaction and bill you for it would be absurd and expensive.
Having a custodian-only solution means having a 3rd party process every expense and income transactions. That means paperwork, delays, and per-transaction fees.
For a static investment like a fund or private stock, that can work OK.
Real estate is not static, and requires checkbook control. You can't wait a week to have your custodian pay a plumber, for example. Timing is critical in real estate so you need the checkbook in your hands, never mind the headache and fees of the 3rd party.
For a California based investor, I would recommend an IRA owned trust to obtain checkbook control as opposed to a LLC. Even an out-of-state LLC will have a California footprint for income reporting and taxes if you are a resident of the Golden State. A trust will not if structured properly.
Any income produced within the IRA must stay within the IRA. Rental income to your IRA is no different than dividend income from a stock in that sense. You can use the accumulated rents to make other investments and compound the growth of your tax-sheltered savings.
While you are not required to have an LLC and can buy rental property directly with your SDIRA custodial account - you will have to go through a "middle man" for each transaction and pay transaction and asset based fees. IRA owned LLC will allow you to bypass the custodian and have "checkbook" control over your IRA.