Do you need an LLC for a self-directed IRA?
You do not need an LLC to have a self-directed IRA or to invest in real estate through one. Most investors start with a standard self-directed IRA custodial account and make investments by directing the custodian to act on their behalf. The LLC is an optional structure that provides additional control and speed, not a requirement.
A self-directed IRA LLC, sometimes called a checkbook IRA or checkbook control self-directed IRA, is set up when the IRA purchases ownership interest in a newly formed LLC. You are then named the manager of that LLC. The LLC opens its own bank account, and you can write checks or wire funds directly from that account to pay for investments and expenses without waiting for custodian approval each time.
The benefits of a self-directed IRA with checkbook control include faster transaction speed, lower per-transaction fees from the custodian, and greater flexibility in managing day-to-day investment expenses. Real estate investors who are frequently purchasing properties, paying contractors, or managing multiple rentals often find the checkbook structure more efficient.
The drawbacks include the self-directed IRA LLC setup cost, which typically ranges from $700 to $2,000 when you account for attorney fees, state filing fees, and the required LLC operating agreement. There are also annual state compliance costs and registered agent fees. The self-directed IRA LLC operating agreement must be carefully drafted to reflect the IRA ownership structure and the restrictions on your role as manager.
Can a self-directed IRA own an LLC? Yes, this is the exact structure of the checkbook IRA. Can a self-directed IRA invest in an LLC that you already own? Generally no, because investing in an LLC where you hold more than 50 percent ownership would constitute a transaction with a disqualified person, violating self-directed IRA prohibited transactions rules.
BullioniteAssetGroup helps clients evaluate whether the LLC structure is worth the additional cost and complexity for their specific investment strategy, and we assist with the setup when it makes sense.
