Posted about 1 year ago

What is an IRA LLC/Checkbook IRA?

A key feature of the IRA LLC is the checkbook control feature. This allows you as the manager of the IRA LLC to direct investments by simply writing a check or by requesting a bank wire.

The self-directed IRA becomes the member in the newly formed LLC by purchasing units of the LLC.  

The IRA LLC/Checkbook IRA process includes the following:

Step 1: Transferring IRA or 401k funds to a self-directed IRA custodian: First transfer your current IRA or former employer 401k plan or other type of qualified plans such as a 403(b), 457 or Defined benefit to a self-directed IRA custodian that allows for investing in private companies, as an LLC falls under the private company or private placement category.

Step 2
:Working with RA LLC Facilitator: Choose an IRA LLC  facilitator company that will provide the following setup services:

  • explain the process and the rules;
  • register the LLC with the applicable state;
  • obtaining the employer identification number (EIN) for the LLLC;
  • prepare the IRA LLC operating agreement that includes specific IRA rules and IRS; and regulatory language.

Step 3: Open the LLC bank account at your local bank. Before the LLC IRA can be funded, open a checking account at your local bank or credit union in the name of the LLC.You will use the LLC articles of organization and EIN for the LLC to open the LLC bank account.

Step 4: Fund the IRA LLC: Once the self-directed IRA has been setup, you will need to submit the following documents to the new IRA custodian so that they can fund the LLC bank account.

  • The LLC operating agreement;
  • EIN Letter for LLC;
  • LLC articles of organization; and
  • Investment forms.

One the above documents have been submitted to the IRA custodian, the custodian will wire the funds to the new LLC bank account.

Step 5: Start processing investments uder the LLC. You are the manager of the newly funded IRA LLC. As such, you will be responsible for processing the alternative investments. Investments include the following, for example:

  • real estate;
  • promissory notes;
  • tax liens;
  • private placements;
  • precious metals, and
  • Bitcoin

Why a Self-Directed IRA LLC / Checkbook IRA

  • Investing your funds in an IRA LLC allows for holding of alternative investments in the name of the LLC instead of the self-directed IRA custodian's name. This generally equates to far less custodian fees and involvement.
  • The IRA LLC arrangement also removes the red tape placed by the IRA custodian.
  • The IRA LLC provides a multi-layer protection against liabilities because investments are made in the name of the LLC not the IRA.
  • The IRA LLC allows partnering with other investors.
  • IRA LLC allows for non-recourse loan/debt financing when investing in real estate.

IRA LLC /Checkbook IRA Rules

  • The same IRA prohibited transaction rules that apply to an IRA apply to an IRA LLC.
  • When an IRA is the sole member of an LLC, the LLC is deemed a single member LLC and thus classified as a disregarded entity. Therefore, a single-member LLC is not subject to filing a Form 1065.
  • The manager of the IRA LLC may not be compensated if the manager is the IRA participant or a disqualified party (e.g., the IRA participant's spouse, children, parents, for example).  
  • Investments must be titled in the name of the LLC not your name or in the name of the IRA.
  • The IRA LLC bank account may not to be co-mingled with your personal funds.
  • The IRA participant is prohibited from personally guaranteeing debt on behalf of the IRA LLC.
  • The IRA owned LLC may obtain a non-recourse loan from a third-party for investing in real estate. The non-recourse loan payments are made from the IRA LLC bank account.  
  • Annual IRA contributions and IRA/401k transfers must flow to the self-directed IRA not the IRA LLC.

Comments (3)

  1. Hello and yes.

  2. Thanks for the information.  Will the language for the articles of organization for the LLC be the same for a self directed ESA?

    1. Hello,

      No it would not because ESAs have separate rules.