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Updated about 11 years ago, 11/07/2013
Can I start an LLC with my self directed IRA?
I was wondering if I could start an LLC with my self directed IRA. I was considering purchasing property with the LLC and loaning money to purchase property in the LLC. Does anyone know if this can be done? If so does anyone have any info on it? Thanks in advanced David Lee
The primary issue for a self-directed IRA funds is that you're a "passive" investor. You can't take the money and use it to actively manage a business. If you work with someone who has an LLC, you can direct your funds into their business, so long as you're a passive investor. You can't take the funds from your SDIRA, put them in your LLC, then flip a house with the LLC.
I mean, you can, but expect a phone call from the IRS.
Why are you looking to set up an LLC in your IRA? What benefit are you hoping to gain?
You can create an IRA LLC. That is an LLC that's specifically created to be owned by your IRA. It has to have very specific verbiage in its operating agreement to comply with court cases that make this allowed. The IRA will be the one and only member of the LLC. You can be the manager.
However, all the usual rules apply. You cannot be paid by the LLC or your IRA. You cannot contribute your labor to anything the LLC is doing. You and the LLC cannot engage in any transactions. Nor can the LLC engage in any transaction with any other disqualified person or entity. If the LLC engages in an active business, such as fix and flipping or wholesaling, its subject to UBIT taxes.
I'm confused by this:
You could create an LLC owned by the IRA and have the LLC purchase property. There wouldn't be any loans between the IRA and LLC, though. Rather, the IRA would make an investment in the LLC. Same as any investor buying units in an LLC.
OTOH if you mean you would create an LLC that you control and have the IRA loan money to it then you would be engaging in a prohibited transaction. Your IRA cannot loan money to you or any entity controlled by you.
@Jon Holdman I have read some where you can invest into your company like buying stocks in it maybe it was a S-corporation or C-corporation?
Originally posted by David Lee:
You are referring to the Rollover as Business start-up. Also known as ROBS.
It is a C-corporation that is opened with you and the the 401k shareholders.
You might also look at the Solo401k setup. It doesn't work for me so I've not dug too deeply. But it may be relevant in your situation.
Why wouldn't you just buy the real estate in the IRA? It sounds like you are trying to loan dollars in your IRA to a LLC in your IRA. Either way, you have the same dollar amount. That is why I wanted to know why you wanted to do that/what benefit you wanted to accomplish.
@Scott Turransky I was trying to see how I might be able use my retirement money to loan me money for investment property and my retirement money would gain money off of the interest.
Again, so why not just buy in the SDIRA, then the profits go directly back in to the SDIRA. As well as the proceeds from selling (assuming you are buying in emerging markets where real estate is appreciating....). That seems the most direct way to do it. Your way sounds like you are adding a layer of complication.
The benefit of having an LLC owned by your IRA is that you can have much quicker access to your money because you control the checkbook. If you see a deal you can act fast instead of waiting for your IRA custodian to process a payment.
Originally posted by David Lee:
@David Lee,
Look into ROBS. Otherwise you would have to borrow from a 401k plan OR withdraw the funds. And that last one won't help you fund your retirement account.