Can a SD checkbook LLC, invest in crowd funding?
I assume you mean an checkbook SD retirement account (SDIRA or SD Solo401k). The answer is a definite yes, although some crowdfunding sites may not allow it, but most all will.
you certainly can invest in crowdfunding with custodial IRA or 401k. However, Larry is correct, some of those platforms may not allow it, but in your case, since you are using Checkbook IRA LLC, the LLC would be making an investment, not the IRA, and I'm pretty sure that all of them would allow investments from the LLC.
If the SDIRA LLC was done correctly the crowd funding platform should never know it is owned by an Ira. However depending on the investment UBIT could be due. The LLC does not eliminate prohibited transactions. If all the investments are arms length from you or other disqualified persons it should be fine.
@LarryF, yes, a retirement account SDIRA. Thank you!
Thank you @carlfisher and @dimitriyfomichenko!
Another question: Is it true that you can't use your Checkbook retirement IRA LLC account to invest in companies that are S Corps?? I currently am investing my personal money in a company where I get monthly dividends. I was told that I would be unable to use my SD retirement acct. LLC to invest in this company because the company is an S Corp. Is this true?
The reason being is that in order to be a shareholder of an S-corporation you must be a person. LLC is not a person.
Ok, that's understandable. But what if you are just loaning money to the S Corp, not buying shares? I found this information online which is why I'm asking about a "loan" as opposed to "buying shares".
"S-corporation rules prohibit the purchase of S-corporation stock by an IRA owned LLC because it is not deemed a qualified owner. However, this restriction does not apply to loans by IRA LLC owned IRAs to S-corporations. The S-corporation restriction does not apply to self-directed Solo 401k."
Yes, your IRA LLC may lend to S-corporation, as long as no disqualified person is involved.
A Checkbook IRA-LLC is oftentimes the investment vehicle of choice for crowdfunding investments, as there are some crowdfunding platforms that do not accepts SDIRA investors - but utilizing the IRA-LLC enables you to get in.
An IRA can't be a shareholder of an S-corp due to a "technicality." S-corp is not a type of legal entity, but is rather an election by a business entity to be taxed under Sub-chapter S of the tax code, which provides for "pass-thru" taxation of the business's profits. However, a business that is owned by an IRA is not eligible for S-corp tax treatment. Therefore, the moment an IRA becomes an owner of an S-corp - it ceases to be an S-corp.
In contrast with the prohibited transaction rules to which IRAs are subject, investing an IRA in an S-corp would not violate IRA-rules and would not disqualify the IRA.
Once the rule is understood, the distinction between S-corp debt and equity investment by an IRA, is easily understood.
@Bernard Reisz ......So, how I'm interpreting your response based on the third paragraph is that it's ok? My SD checkbook IRA is giving a private loan to a business, which happens to be an S Corp. In return, I'm getting monthly interest that will go back into myIRA LLC. Legal??
Yes, that's allowable since the borrower's S Corporation status doesn't create a prohibited transaction and lending money to an S Corporation does not make the lender a shareholder. The issue at hand would have been the fact that IRAs and 401ks (and other non-natural persons) cannot own shares in an S Corporation.
Thank you @Justin Windham