SDIRA LLC vs just SDIRA and rental income.

[Matthew Swearingen]

I have a two part question. 

1. If I understand the SDIRA, without an LLC I have to wait for the custodian to approve a transaction in addition to them charging me fees..correct?

If that's the case is there a reason not to have an LLC?

2. If I purchase an income property and collect rents, can I take those rents and use them to pay down the investment home or use them in another manner or do they have to sit until disbursement at 59 1/2 year?

[Brian Eastman]

@Matthew Swearingen

Having a custodian-only solution means having a 3rd party process every expense and income transactions.  That means paperwork, delays, and per-transaction fees.

For a static investment like a fund or private stock, that can work OK.

Real estate is not static, and requires checkbook control.  You can't wait a week to have your custodian pay a plumber, for example.  Timing is critical in real estate so you need the checkbook in your hands, never mind the headache and fees of the 3rd party.

For a California based investor, I would recommend an IRA owned trust to obtain checkbook control as opposed to a LLC. Even an out-of-state LLC will have a California footprint for income reporting and taxes if you are a resident of the Golden State. A trust will not if structured properly.

Any income produced within the IRA must stay within the IRA. Rental income to your IRA is no different than dividend income from a stock in that sense. You can use the accumulated rents to make other investments and compound the growth of your tax-sheltered savings.