Set up my own LLC for checkbook SDIRA or hire someone else?

Question

I’ve set up my own LLC before in Missouri. It takes less than 30 minutes and costs around $55. I once paid a princely amount to attorney to do that for me and it took 3 weeks. I learned my lesson. So...

But what about setting up an LLC with checkbook control to use with a SD-IRA? Is this something I can handle myself with a few templates or should I should I hire a specialist, and how much could I expect to pay them? My local attorney wasn't able to assist.

And between checkbook controlled SD-IRA and a SD solo 401K, the latter is recommended by several here on BP. Can I convert the IRA to a 401K?

Brian Eastman · Answer

@Paul Winka

The LLC for a checkbook IRA is specialized in nature with respect to several components of how it is formed and ultimately integrated with the IRA account at the custodian that will hold the LLC.

While it is critically important that the LLC be formed properly, it is even more important that it be used properly.  Having experts in this space on your team who can guide you as to the IRS rules as you invest with and operate an IRA owned LLC is vital.  It is easy with such guidance to avoid risk with the IRS.   Without such guidance, you are putting the entirety of your IRA at exposure to distribution and significant taxes if you make a mistake.

We regularly get calls from folks who are half-way through trying to cobble together their own LLC.  99% of the time they are early in the process and have already done something that would violate IRS rules.  They have wasted time and money and need to start over with a professional or abandon the concept entirely.

When you work with a professional firm that specializes in this area, you will generally get the plan setup as well as guidance bundled in with the service, which is why most providers charge more than the $51.25 fee involved with the state filing component you mention.

If you were to have success establishing the structure and getting a custodian to accept your LLC documents, you would then need to find a knowledgeable attorney in this space and pay on the order of $400/hour for any questions you may have about IRS rules in the future.

Brian Eastman · Answer

@Paul Winka  Checkbook control is not what you need.  Work with an IRA custodian.  The dollar value and transaction activity do not merit the overhead of the legal work to create the LLC.

Carl Fischer · Answer

@Paul Winka

I usually recommend the use of a professional such as an attorney when setting up an LLC for checkbook control with a self-directed IRA. There are some significant differences when the IRA is involved.

You can rollover an IRA to a 401(k). Do you meet the qualifications for a solo 401(k)?

Paul Winka · Answer

Brian, that's good to know I can avoid the legal fee expense for this situation, at least for now.

Reason I ask is I have called both Realty Mogul and Patch Of Land to get something going, maybe a total of 8 calls between the two firms, and I've not been getting the warm fuzzy feeling the different reps knew what they were talking about; it's been inconsistent answers about whether or not I could use my SDIRA, no clear guidance on the steps to get the money moved to them, and blasé about me being ready to pull the trigger.

Any recommendations on where to put this money, like who to work with?

Carl Fischer · Answer

@Paul Winka

Agree with @Brian Eastman do it in your Ira to start. You can always do a checkbook LLC Ira at any point. Sounds like you need some education in this area.

Paul Winka · Answer

Great, I'll hire someone to do it, I thought that was going to be the answer, but one never knows.

@Brian Eastman @Dmitriy Fomichenko @Carl Fischer

Wow, thanks much. It's unanimous!

Now that I know I should have an attorney set one up, can you say if this is even what I need? Here is the situation. I have around $20K in an a SDIRA with iPlan that I would like to deploy. What I would like to do is either put money into a crowdfunding venture or buy a performing note on one of the platforms (how to do even do that is another area of research all together).

Is a checkbook controlled SDIRA the way the pros would do that?

Dmitriy Fomichenko · Answer

@Paul Winka

Creating a Checkbook IRA is not a DIY project as Brian eloquently elaborated above. And remember that you are considered to be a disqualified person to your IRA and therefore are not allowed to provide any services to your IRA.

Truly self-directed Solo 401k has several advantages over an IRA so if you are eligible it would be preferred choice in most cases, however if you are not eligible then Checkbook IRA would meet your needs just as well.

Set up my own LLC for checkbook SDIRA or hire someone else?

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