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Written by : Art Schraub
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thanks for checking out this question from our daily live Zoom calls please like And subscribe to keep learning how we help the largest online community of self-directed retirement investors and entrepreneurs grow and control their retirement funds FAQ here we've got a self-directed IRA LLC question and the question is about using an existing LLC so just to set the stage for this question let's recall that a self-directed IRA LLC structure is one where you have an IRA that invests in a brand new LLC so folks will use the Roth IRA LLC or just the self-directed traditional IRA LLC for different reasons one may be because they're not eligible to set up a solo 401K let's say they're not self-employed or let's say that they do have their own business but they have full-time W-2 employees so they're precluded for being able to set up a solo 401k so or let's say that they are eligible to set up a solo 401K but they have Roth IRA funds if they want to invest in alternative Investments so remember that you can't transfer money from a Roth IRA to any type of solo 401k or any type of 401k including a solo 401k so here the question presented is I'm considering setting up an IRA LLC in order to invest my Roth IRA funds in real estate I already have an LLC for my business which sponsors a solo 401K can I use the same LLC for this IRA and then open a separate checking account so good question but the response is no you're not allowed to invest your own IRA funds into an LLC that you own instead a new LLC would be established for the Roth IRA investment
Thanks for your comment Elinore Shike, have a nice day.
- Art Schraub, Staff Member
what's up guys in this video we're going to talk about how not to screw up an llc that's going to be owned by your self-directed ira okay let's get started all right so here's the thing if you're thinking about investing with your self-directed ira into real estate you probably realize hey i don't want to own the property directly in my ira because if anything goes wrong that someone could sue my ira and i'll lose all the other investments now i understand that we talk about protecting real estate on this channel about how you use limited liability companies but here's what happens when you want to use it with your self-directed ira that operating agreement that you set up has to be a very specific llc operating agreement i'm just amazed how many people will send in their llc operating agreements for review and these llc's are presumably owned by a self-directed ira and they just do not pass the test and what i mean by that is that if the irs were to audit the ira owner the ira the llc they're going to see some major deficiencies there that could give rise to disqualification of their self-directed ira now it's simple if you just put together the operating agreement and you put in clauses to ensure that your llc will not fail that means it won't enter into a prohibited transaction it'll do something that will create issues for you then you're going to be on your road to some safe investing now i can't protect you from making mistakes on your own but your operating agreement can help you so here's some things you need to know if you want to go down this road first off if you're going to have your self-directed ira own real estate inside of a limited liability company then you don't want to be the one setting up the llc that's number one mistake that people make they set up the llc themselves then they transfer the ownership interest over to the ira custodian so what ends up looking like is this here's your llc let's say we set up this llc in ohio and remember when you set up a limited liability company you have to ensure that you list the member of that llc that is if the state asks on the uh filings for the article or organization you want to make sure that it's listing your ira down here as the member don't put your own name down there that's going to screw it up because if you list yourself as the initial member of this limited liability company and then you turn around and transfer the llc interest over to your ira that's going to be a prohibited transaction that means you just made a contribution of this llc to your ira the second problem you have here in this transaction let's say you did it right you didn't list yourself you listed your ira you know you have to make sure that you're listing the ira the right way you just don't list your ira name down you know um say it was this was a clint coons ira okay that's not going to work and maybe you put your account number down here as well 67942b okay when you're listing your member of a an llc as your ira you want to ensure that you're listing the custodian as well so pensco trust right you'd put down your pensco trust fbo clint [ __ ] self-directed ira account number 67942b something like that is how it would have to be listed out so that would be the member but the other problem here that people run into is that when you set up your own llc to be owned by your ira you have to pay a fee right you have to pay a fee to the secretary of state who's paying that fee well it shouldn't be coming from you and many times you know you're going to put your credit card in online so that's a mistake right there another one gets us into problems if we if we pay for itself the ira needs to be paying these fees so this can get complicated as you can see when you try to set these things up on your own to protect your real estate and then you have to have a registered agent because every entity needs to have a registered agent again you don't want to be your own registered agent because now you're providing a service that benefits your ira which is another prohibited transaction you can't provide services that increases the value or benefits in this way so you have to then hire someone else to serve as your ra a third party which makes sense it's a smart thing to do but here's the other problem how are you paying them again it needs to come from that ira so those are some of the mistakes and this is why you want to have a professional set up your llc the right way to make sure that you're not going to involve yourself in any of this for example when we set them up we set up the llc we automatically name the ira as the member in that llc and then we list our client that would be you as the manager of this limited liability company now once that is established say with the state of ohio and the way i've just described right here then you have to draft an operating agreement and here's where things can go good or they can take a turn for the worse a lot of people assume that iras are just you know they're all the same just use a standard llc operating agreement you're good to go well unfortunately in many operating agreements there are provisions in there that benefit me as a member or manager of my limited liability company why wouldn't i i'd want to draft stuff in there that that helps me in the running of the business or compensates me for doing certain things with that business or allows me to do other things that will help me grow the business now many of those exact same clauses that are beneficial when we have an llc say set up here and i'm the member in this limited liability company or you know the way i like to talk about having that holding company there those same provisions that work on this side for ourselves for investing outside of the ira can create problems here where we're investing with an ira that is why you want to make sure that you have a number of provisions in there that are going to provide protection for you in case you were audited just to show that you understand that this is an ira making an investment into an llc of which you're going to be the manager and that that llc is not going to engage in any types of transaction that would risk disqualification for your ira so what are some of those provisions that you should have drafted in there number one that your ira will not engage in any transfers with a disqualified person now if you don't know what a disqualified person is check the show notes i've got a little diagram down there of what a disqualified person is but generally speaking it's this anybody in your family tree so if you had a family tree that looks like this right no branches of course just think parents kids all disqualified bring your spouse over here there's another one that's a disqualified party or any entities that are related to you like your corporation or your limited liability company those are all disqualified parties so what does that mean well it means this that my llc that i've set up here cannot buy property from my corporation or from an llc that i've set up or couldn't buy property or sell property to my son or daughter so those are disquali
Thanks Charita your participation is very much appreciated
- Art Schraub
About the author
I've studied cultural policy at Saint Joseph's University in Philadelphia and I am an expert in game studies. I usually feel bored. My previous job was home economist I held this position for 7 years, I love talking about dairy farming and kajukenbo. Huge fan of Liam Hemsworth I practice athletics and collect books and periodicals.
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