Everything You Need To Know About Private Placements and IRAS

You have checkbook control of your IRA funds when your IRA owns and invests in the LLC. The IRA LLC, in this case would invest in the private placement or private equity.

Checkbook control refers to your ability to have a checkbook in your hands that is linked to your retirement funds. When you identify an investment, you write the checks. You’re in total control.

Furthermore, using an LLC in your self-directed IRA does not change the tax advantages of your retirement account. An IRA is a tax-deferred entity, so there is no taxable event in your IRA when investing directly or through the LLC.

Investors must keep in mind that the accounting for the LLC is the responsibility of the LLC manager or its advisors. The IRA custodian is only the record keeper for the account. IRA Resources  does not create LLCs or sell any type of investment. Most custodians or administrators require that you use a third party to create the IRA LLC.

Last, as an investor, when you have checkbook control of your IRA funds through an LLC, there is no need to involve IRA Resources in the purchases your LLC makes. You’re in control, and you’re responsible for knowing and following the rules. It’s very important that you educate yourself on the rules if you are considering using an LLC in your self-directed IRA.

When you use an LLC in your IRA, you have checkbook control of your IRA funds. Checkbook control refers to your ability to have a checkbook in your hands that is linked to your retirement funds. When you identify an investment, you write the checks. You’re in total control.

LLC ownership. Investors are permitted to have an LLC in their IRA. The Internal Revenue Code doesn’t list the types of assets that you can invest in. It only states what you cannot invest in. The only two prohibited assets are life insurance and collectibles. Because an LLC is not a prohibited asset, it is a legal investment for your self-directed IRA.

Disqualified persons. Some partnerships, transactions, and ownership are limited by disqualified persons regulations. For instance, you are only allowed to partner with friends and family at the moment when the IRA LLC is created. This can be a great way to raise additional capital for the purchases you want to make. The percentage of ownership in an LLC is determined by the capital contribution. If your IRA puts $60,000 into the LLC and your spouse’s IRA contributes $40,000, it is a 60/40 split.

Self-dealing. There are certain restrictions to your IRA LLC that prohibit investors from partaking in fiduciary acts that are for their own benefit. Paying yourself a salary to manage your LLC would fall under self-dealing and is not allowed. This is because an IRA owner can’t benefit from the IRA’s investments until the assets are distributed. See IRC Code 4975, for more detailed information.

Roll-over. If your IRA currently owns your LLC, you can roll it over or transfer it to IRA Resources. If the LLC is currently held outside of your IRA, you must form a new LLC for your IRA. For a new LLC, you must create a specific operating agreement that meets the regulatory requirements to structure your retirement account this way.

Yes, but partnering with disqualified persons is allowed only at the moment when the IRA LLC is created. Partnering can be a great way to raise additional capital for the purchases you want to make. The percentage of ownership in an LLC is determined by the capital contribution. If your IRA puts $60,000 into the LLC and your spouse’s IRA contributes $40,000, it is a 60/40 split.

No, earning a salary is self-dealing. An IRA owner can’t benefit from the IRA’s investments until the assets are distributed. See IRC Code 4975, specifically the benefit rule, for more detailed information.

It depends. If your IRA currently owns your LLC, you can roll it over or transfer it to IRA Resources. If the LLC is currently held outside of your IRA, you must form a new LLC for your IRA. For a new LLC, you must create a specific operating agreement that meets the regulatory requirements to structure your retirement account this way.

Using an LLC in your self-directed IRA does not change the tax advantages you receive. Your IRA invests in and owns the LLC. An IRA is a tax-deferred entity, so there is no taxable event in your IRA when investing directly or through the LLC.

No, the accounting for your LLC is the responsibility of the LLC manager or its advisors.

No, IRA Resources is the record keeper for the account. IRA Resources does not create LLCs or sell any type of investment. Most custodians or administrators require that you use a third party to create the IRA LLC.

No, when you have checkbook control of your IRA funds through an LLC, there is no need to involve IRA Resources in the purchases your LLC makes. You’re in control, and you’re responsible for knowing and following the rules. It’s very important that you educate yourself on the rules if you are considering using an LLC in your self-directed IRA.

Advantages of using an LLC in your self-directed IRA include:

• Control: You have a checkbook that is linked to a checking account set up in the name of your LLC under its own tax ID number. When you identify an investment that you want to purchase, you can just write a check. You don’t have to fill out paperwork, get approval from the administrator, or wait for someone else to fund the investment. You can take care of it yourself. This can be particularly helpful in investments that have a limited time period or are being auctioned.
• Cost: Checkbook control can help you avoid transaction and check-writing fees that are typically associated with a self-directed IRA. If there are multiple investments in the LLC, IRA Resources only charges you for one asset, the LLC.

If the LLC checking account is cash-poor, here are a couple of ways to get more money in the account:

• Annual contribution: If you are eligible to make annual contributions and haven’t done it yet, make your contribution. You can direct IRA Resources to send the money in the name of the LLC to you as the manager and deposit it in the LLC’s checking account. This is applied as additional capital.
• Partnering: If you can’t make a contribution, you can add partners (as long as the person is not disqualified to the LLC) or the LLC can get a non-recourse loan. The list of disqualified people includes you, your spouse, children, grandchildren, parents, grandparents, and all their spouses. It’s always a good idea to apply due diligence and refer to IRC Code 4975 to avoid a prohibited transaction.

Brokers sell stock market–based investments. Many brokers don’t understand self-direction and discourage their clients from engaging in it. Remember, your broker was trained to sell you stocks, mutual funds, CDs, and bonds.