I currently have some money in an old 401K and a traditional IRA that I would like to roll over into a SDIRA. I am doing a lot of reading on how to use these funds but I really need to find someone to work with that will make sure I do everything right and not get myself into trouble.
Does anyone have any recommendations of people and companies they have worked with in the past that has helped them.
Following is some information regarding the self-directed IRA LLC.
The Checkbook IRA Do’s
Do open the checkbook IRA bank account in the name of the LLC, not in your personal name.
Do use the LLC employer identification number (EIN) when opening the checkbook IRA bank account.
Do title checkbook IRA investments in the name of the LLC, not your personal name.
Do pay investment expenses associated with the checkbook IRA assets (e.g. for a real-estate property, this entails paying property taxes, property insurance and repair costs) using checkbook IRA funds not personal funds.
Do deposit investment gains into the checkbook IRA bank account.
Do manage the checkbook IRA but do not receive compensation for doing so.
Do make IRA annual contributions to the self-directed IRA first not the checkbook IRA.
Do not use the checkbook IRA funds for your personal use.
Do not use the checkbook IRA assets (e.g., for a rental property, do not live or vacation in the property).
Do not perform repairs on real-estate property owned by the checkbook IRA as you are a disqualified party.
Do not deposit personal funds into the checkbook IRA bank account.
Court cases that support the Checkbook IRA arrangement
Swanson v. Commissioner
Hallweg V. Commissioner
ERISA Advisory Opinion 97-23A
Mark's Checkbook IRA highlights are a great start. Aside from mechanics, it's important to know that all IRA/IRS guidelines extend to the LLC as an investment vehicle. Due your due diligence and be sure to understand all of the rules before engaging this structure.
Here are some other things to learn about:
- Cash flow mechanics in/out of the plan
- Who are disqualified persons?
- What is a prohibited transaction?
- Funding an SDIRA (Transfers vs Rollovers)
- Writing offers and issuing earnest money
- leverage and the use a mortgage (specifically UBIT)
- Fair Market Valuations
Great talking with you earlier Jillian - Best of luck. Feel free to ask new questions in the future.
To clarify a bit, there is no IRA called a "checkbook IRA". This structure is accomplished by opening an IRA, then forming a single member LLC that will be owned by the IRA. That LLC can have its own bank account/checkbook, and can be managed by the IRA owner as a non-member manager.
Some SD IRA custodians will not accept single member LLCs as an IRA investment due to increased regulatory scrutiny that begin in 2009. Those IRA custodians that do accept them will most likely require that you appoint a special advisor to oversee the transactions of your IRA-owned single member LLC, to ensure you are not crossing the line and doing prohibited transactions. Generally the requirement is for a licensed CPA or attorney.
Additionally, this structure is not required for RE investing, but it does simplify things as the LLC manager can write checks for expenses incurred by the LLC-owned property, instead of sending invoices directly to the IRA custodian for payment.
Be sure you're working with a qualified, regulated IRA custodian that has a specialty in Self-Directed IRAs or alternative assets. They will know all the IRS rules and regulations and will work with you to be sure you're fully educated on the Do's and Don'ts before you proceed.
As others have mentioned, if you are looking for an IRA, a self-directed custodian is a good place to start. If you want checkbook control, IRA LLC facilitators usually have relationships with low cost custodians that don't have any issues with the LLC use.
If you are eligible, you may find that the Solo 401k fits your needs and can be a nice alternative to IRA custodial requirements.
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