Rental Property Investor · Pomona, CA · Member since 2017 · 22 posts · 4 votes
In Podcast #211, Bob mentioned using his Roth to invest in his LLC. I've heard of doing this with a self-directed brokerage for a 401k/IRA and now I'm more curious about pursuing this because of money in a Roth. I'm curious if anyone recommends a custodian other than that Bob mentioned (Sun West Trust in NM) for accomplishing this.
Here is more information on the topic for those interested: https://www.biggerpockets.com/renewsblog/invest-real-estate-self-directed-IRA/
The IRA is not investing in your LLC. The LLC is wholly owned by the IRA. This mechanism is referred to as a Checkbook IRA LLC and has been around since the early 1990's. It is a great way to take full control over IRA money and invest in alternative assets such as real estate, private notes, cryptocurrency, etc. it is very similar to the Solo 401(k) in functionality, just based on an IRA format. If you have an existing Roth IRA, this is the way to go.
With this structure, the best place to start your vendor research is with the specialty firms offering the LLC program. They are providing the real service and consulting layer, and will use one or more custodian's for the back end role of simply holding the IRA and documenting the IRA's ownership in the LLC entity. Several providers are active here on BP and can help you gain the knowledge you need to determine if this is the right strategy for you.
The IRA is not investing in your LLC. The LLC is wholly owned by the IRA. This mechanism is referred to as a Checkbook IRA LLC and has been around since the early 1990's. It is a great way to take full control over IRA money and invest in alternative assets such as real estate, private notes, cryptocurrency, etc. it is very similar to the Solo 401(k) in functionality, just based on an IRA format. If you have an existing Roth IRA, this is the way to go.
With this structure, the best place to start your vendor research is with the specialty firms offering the LLC program. They are providing the real service and consulting layer, and will use one or more custodian's for the back end role of simply holding the IRA and documenting the IRA's ownership in the LLC entity. Several providers are active here on BP and can help you gain the knowledge you need to determine if this is the right strategy for you.
@Account Closed or others and see who is the best fit for you. I think using a smaller and more personal firm like their's is a huge benefit as far as getting a good fit. Fees seemed fairly similar when I checked around.
As a side note, when I started my SDIRA I did a ROTH that invested in 1/3 of an LLC. I could have use Traditional IRA funds too (had about the same amount to roll over in each kind). My other two partners used Traditional IRA funds. Down the road we wanted to convert over to a SOLO401K when we learned about them, and I learned the hard way that a ROTH is about the only kind of retirement fund that can NOT be rolled over into almost any other type of fund. I would have done it different if I knew then what I know now.
Thank you for your response and clarity. Yes, I do have an existing Roth IRA that I have contributed to for years and am now looking for diversifying investments without simply buying REITs. This option sounded like an interesting way to help accomplish retirement goals and real-estate investment goals while having some more control.
I never heard of a Checkbook IRA LLC so this is helpful. You mentioned specialty firms that offer the LLC program. Just for clarify, the program I should request information on is the "Checkbook IRA LLC"?
Hi @Daniel Dietz. I appreciate your comments. Good to know about the Roth rollover constraints to consider. Currently, however, the custodian through my employer does not allow these types of investment vehicles so I am constrained to use my Roth at the present time while I'm employed. I'm guessing you didn't have a similar constraint or am I overlooking something?
Yes, Checkbook IRA, Checkbook IRA LLC, IRA LLC, Self-Directed IRA LLC. They all refer to this structure.
The alternative is a self-directed IRA held by a custodian. In that case, the custodian holds the funds, signs every document, cuts every check, etc. as the processing layer. For investments that are pretty singular and static, such as a crowdfund, that can be the way to go. For portfolios that will be more dynamic, having the IRA make a single investment into the LLC is the more efficient structure. The IRA will own the LLC and all of the activities of the LLC are subject to the same IRA rules and receive the same IRA tax-benefits. The advantage is that you can act as the non-owner manager of the LLC and therefore direct the activities personally instead of relying on a 3rd party processor.
@Account Closed before I started using a SDIRA and SOLO401K for real estate investing I never had a 'workplace plan' as I have always been self employed. So I just did my own saving in IRAs. I convert everything I had the first year they offered ROTHs since you could spread the tax hit over 5 years if I remember right. After that I used traditional IRAs to get the tax deductions and have a balance of ROTH and Traditional. That had roughly the same value when I discovered SDIRAs.
So what I meant was having the choice of my own personal IRAs, I would have used the Traditional for SDIRAs and kept the ROTH for non-SDIRAs such as stocks, etfs, etc....
Another good self-directed IRA custodian that will custody IRA LLCs is IRA Services Trust Company. They probably hold the most IRA LLCs in the industry and they have been in business since 1978. Many of my clients have used them for example.
Thanks George! Is this the one in California? I'll give them a call but wanted to make sure it was the correct one. Do you know if that matters whether Roth or Traditional? Thanks so much for your reply.