SDIRA checkbook status and credit card

11 Replies

I have recently went through the process of setting up my SDIRA with checkbook status. The bank that is housing the LLC insisted that I have a credit card. Is it a prohibited transaction to use the LLC credit card to pay contractors to do work on the property or as a down payment to purchase a property?

James Sullivan, Sullivan's High Aspiration | 334‑220‑4054

@James Sullivan  

You absolutely should not get a credit card in the name of the LLC. Your signing a personal guarantee on that debt instrument would be a prohibited transaction. Use a different bank if you have to.

The IRA LLC may use a debit card, since there is no credit association.

Medium safeguard rgb stackedBrian Eastman, Safeguard Advisors | [email protected] | 855‑997‑2298 | http://www.ira123.com

It will be interesting to hear what those with more knowledge than me have to say on this one. I DONT have a credit card, as all the ones I looked at wanted me to *personal* sign, meaning guarantee it. I THINK this would be prohibited as *I* and my SDIRA cannot 'benefit' each other. 

Did you need to personally sign? I have a debit card set up, as I did not need to sign on that, it is secured by the funds in the LLC checking account.

Most things I charge (supplies) on my normal account at say Home Depot, and when the bill comes, I simply separate the amounts for personal and SDIRA and use a check for that portion of the bill.

Dan Dietz

Daniel Dietz, 3D Property Investments LLC | [email protected] | 608‑524‑4899

Thanks for the feedback. I do recall signing some docs, just need to go through them again. I agree, It just didn't seem right using a cc, so i DIDN'T thanks for the confirmation.

James

James Sullivan, Sullivan's High Aspiration | 334‑220‑4054

I was advised by an attorney that you MUST not get a credit card for the bank account for an IRA LLC. The bank will almost certainly want a personal guarantee (that is, your SSN and your signature as you rather than as the manager of the LLC.) That's prohibited whether you ever use the card or not.

I was also advised a debit card would be OK.

I think you're playing with fire, @Daniel Dietz You're mixing your personal finances with your IRA-LLC, even if you pay the bills separately. You should get a separate account for the IRA-LLC and never, ever mix IRA-LLC money and personal money. Given you've done this, you will need to have very detailed records to survive an audit and prove you're not done any prohibited transactions. Such as the having the IRA-LLC buy a can of paint that you subsequently used for a personally owned property. It only takes one prohibited transaction to result in the entire IRA being considered to be distributed. Which triggers taxes and penalties on the entire balance.

Jon Holdman, Flying Phoenix LLC

Originally posted by @Daniel Dietz :

... Most things I charge (supplies) on my normal account at say Home Depot, and when the bill comes, I simply separate the amounts for personal and SDIRA and use a check for that portion of the bill.

@Daniel Dietz are you saying that you use personal Hope Depot credit card to purchase supplies for properties owned by your SD IRA and then when you get a bill from the credit card you pay the portion of the bill from your IRA LLC?

If you ever get audited it can be viewed as prohibited transaction. You should stop doing so and simply use your IRA LLC's debit card for purchases related to investments owned by the IRA LLC. You are not allowed to commingle personal funds with the funds of the IRA and you are doing so by using personal credit card.

Medium logo 19 1Dmitriy Fomichenko, Sense Financial | [email protected] | (949) 228‑9393 | https://www.sensefinancial.com/free-consultation/ | CA Agent # 01876563

@Dmitriy Fomichenko   & @Jon Holdman ,

Thanks for the advice. I do see what you guys are saying about the personal card being considered a 'temporary personal guarantee' to paraphrase your thoughts.

Am I understand right that the *debit* card is fine since it is *only* secured by the funds in the LLC's account and not in any *personal* way?

Thanks, Dan Dietz

Daniel Dietz, 3D Property Investments LLC | [email protected] | 608‑524‑4899

@Daniel Dietz  

the debit card is only attached to your IRA LLC checking account and as long as you use that ONLY for expenses related to the investment owned by your IRA LLC - you are fine.

Of course you can also commit a prohibited transaction the minute you start using that debit card for personal benefits (for example: paying for your groceries or filling gas in your car, etc). Just remember not to commingle your personal finances with your retirement account. All transactions must be "arms length".

Medium logo 19 1Dmitriy Fomichenko, Sense Financial | [email protected] | (949) 228‑9393 | https://www.sensefinancial.com/free-consultation/ | CA Agent # 01876563

Thanks for the clarification.... I will change my way of doing things ASAP.

Dan Dietz

Daniel Dietz, 3D Property Investments LLC | [email protected] | 608‑524‑4899

Years ago I secured a business line of credit that was somehow was not tied to my personal  ssn, but only to the business . Could this is be possible with the sdira?

James Sullivan, Sullivan's High Aspiration | 334‑220‑4054

Originally posted by @James Sullivan :

Years ago I secured a business line of credit that was somehow was not tied to my personal  ssn, but only to the business . Could this is be possible with the sdira?

Technically this is possible, however, practically the chances are that no bank or other institution will issue a credit to an entity (your IRA LLC) which has no credit history.

Just forget about using credit card in connection with your IRA. Use debit card instead.

Medium logo 19 1Dmitriy Fomichenko, Sense Financial | [email protected] | (949) 228‑9393 | https://www.sensefinancial.com/free-consultation/ | CA Agent # 01876563