What is a Self-Directed IRA Custodian?
A custodian is a company by virtue of IRC 408(n) has the authority to hold title to thef assets of an IRA.  What is referred to as a “self-Directed” custodian is one that will allow you to invest your IRA in more than the traditional types of investments.  As a matter of fact all IRA’s are self-directed but the IRS allows custodians to choose which investments they will allow their accountholders to invest in.  Make sure the custodian you are using will allow you to invest in what you are interested in before you move your account.  

What is an IRA LLC or checkbook control?
What has been referred to as a “checkbook control” IRA is simply an IRA that has directed the IRA custodian to invest the IRA assets into the membership units of a single member LLC and the IRA accountholder names themselves the manager of that LLC thereby allowing the accountholder to have a checkbook for the LLC.

What can I invest in if I have a IRA LLC?
Your IRA LLC can only make the same type of investments that you IRA it’s self can.  In other words, if you cannot invest in something directly with your IRA you cannot invest in it with the single member LLC owned by your IRA.  See IRC 4975

Why haven’t I heard of this before?
From the time congress created the traditional IRA you have been allowed to invest in anything excepted life insurance and collectables, and also investments with disqualified parties.  Section 4975 of the internal revenue code spells out exactly what cannot be invested in.

How are custodians different from each other?
Any firm acting as a custodian must qualify under the rules of IRC 408(n).  These firms are regulated by either the federal government of their respective state governments.  Make sure you understand the difference between a custodian and an administrator.  Custodians are regulated and many administrators are not. 

Do I get complete control?
With a single member LLC owned by your IRA you as the manager of the LLC can make investments for the LLC without the custodian’s oversight but you must be very careful not to commit a prohibited transaction within the LLC.   You must also keep very good records on the transaction made with the LLC assets and report the fair market value of the assets within the LLC to the custodian every year as of December 31st>

How do I know that this is legal?
This is a question asked by many that have never heard of a self directed IRA before and many times this question is asked by CPA’s themselves.  For your satisfaction you should read IRS publication 590, there you will find the type of investment that are not allowed in an IRA.  As far as the single member LLC is concerned refer to  
“Swanson vs. The Commissioner”.  This is the case that all single IRA LLC’s are based upon.  You need to review this information along with you CPA or tax attorney to decide if the single member IRA is right for you and your situation.

Can I use funds from a 401K, IRA, Sep IRA, Roth IRA, or 403b with IRA LLC?
In most cases yes but check with your CPA or tax professional.

Can my IRA purchase Real Estate I already own?
No. You are considered a disqualified party and my not do business with your IRA.  Review Publication 590 and section 4975 of the IRC with your CPA or tax professional before making any investments with your IRA LLC.

If I buy an income producing rental property, who gets the rental income?
The owner if the property would get the rental income which in this case would be your IRA LLC.  All expenses and income derived from an asset in the IRA LLC must come from and go into the IR LLC. 

Can I use leverage in buying real estate?
Yes , just as you can directly in our IRA you can get a loan in your IRA LLC.  As always it must be a non-recourse loan and you cannot personally guarantee the loan for the LLC.

Can my IRA co-invest with friends?
Yes. IRAs may purchase an undivided (and proportionate) interest in Real Estate.  We strongly recommend that you review any transaction of this type with your CPA or tax attorney.

Can I be the property manager of the Real Estate?
You can rent the property and collect the rents.  It is not recommended that you do much more than that.  You should not pay yourself a salary or do any of the actual repairs on the property.  Again a good CPA’s review of this would be strongly advised.

May I use my IRA funds to make improvements or renovations?
Yes.  In fact you must, as discussed about all expenses and income must come from and go to the IRA LLC.  If you want a distribution from the IRA LLC it must first go through the custodian of the IRA

Can I buy vacation property?
the IRA LLC can buy a vacation property as a rental but you or any other disqualified person cannot stay in the property.

Can I buy my dream retirement home with my IRA and then live in it when I reach the age of
Yes.  You IRA LLC could own the “dream home” and once you reach the ace of 59 ½ you have your IRA distribute the asset to you.  Depending on the type of IRA you have you may have to pay the taxes on the Fair market value of the home at that time.

Can my IRA LLC make loans to other individuals who want to buy Real Estate?
Absolutely as long as they aren’t “disqualified persons”.

Can I make a loan to my brother, aunt, cousin or stepchild

Yes. According to IRC 4975, siblings, aunts, uncles, cousin and “step relations” are not included in the
definition of disqualified persons. Thus any dealings between your IRA and these would not be a prohibited transaction.  

Can my IRA LLC make loans to a friend?
Yes, you need to make sure that they don’t qualify as a disqualified person , but in most cases they will not be..

What are Prohibited Transactions?
“Generally a prohibited transaction is any improper use of your IRA account or annuity by you, your
beneficiary or any disqualified person. Disqualified persons include your fiduciary and members or your family (spouse, ancestor, linear descendant, and any spouse of linear descendant).”  IRS Publication 590

IRC 4975 is the section that lays out the rules on prohibited transactions. Prohibited transactions generally involve one of the following:

(1) doing business with a disqualified person;
(2) benefiting someone other than the IRA;
(3) loaning money to a disqualified person; or
(4) investing in a prohibited investment.

Who is a disqualified person?

  • the IRA holder and his or her spouse;
  • the IRA holders ancestors, lineal descendants and their spouses;
  • investment advisors and managers
  • any corporation, partnership, trust or estate in which a disqualified person has 50% or greater
    interest; and
  • anyone providing services to the IRA such as a trustee or custodian.

Can I invest in an existing business?
Yes.  You can purchase stock or make a loan to a business.   Be careful to make sure that the business is not disqualified because of ownership or some other reason.

Can I buy Stocks, CDs, Bonds, Options or do FOREX trading etc.?

I have a 401K with an old employer. Can I move it into the IRA LLC?
Yes. You can move these 401K funds into the IRA LLC.

I have a 401K with my current employer. Can I move it into the IRA LLC?
You would need to check with the 401k plan administrator to see if the plan allows “in service distributions”.

I have several IRAs and old 401Ks. Can I combine them?
Yes, any qualified plan can be moved into an IRA and the IRA can then purchase LLC membership units.