Looking for a way to invest my ROTH money

[Sandy Sawyer]

Please forgive me it this ground has already been covered, but I've read that I can use the money in my (and husband's) ROTH IRA to fund investments, but better to put them in an LLC that I can manage the checkbook. Is this still a viable option? I was at the Houston REIA last night talking with a girl from Quest and she told me that's a prohibited transaction, for me to personally manage the LLC, that the custodian would have to do that. Any suggestions? I also don't want to bleed out in fees.

[Brian Eastman]

@Sandy Sawyer

The person you spoke to from Quest is either not well informed or providing mis-information to you that favors their business model.

There are two business models of deploying a self-directed IRA into non-traditional assets such as real estate.

A self-directed IRA custodian such as Quest can hold the funds and act as processor. This is very much like having an account with a mainstream brokerage and they do the trading. With this model, you tell the custodian what to invest in on behalf of your IRA and they execute the transaction. They sign every document, cut every check and receive every deposit. This works OK for an account with a small number of relative static assets.

A self-directed IRA LLC provide greater flexibility and control. In this structure, an IRA such as that above is the stating point, but the IRA is then invested into a specially crafted LLC. The IRA will own the LLC but you can be the non-owner manager of the LLC and have signing authority. This pushes the IRA to the back end and allows you to use the LLC for all transactions. This structure is much more nimble and efficient for investments such as rental property where there are a lot of transactions and things can be time-sensitive in nature.

The IRA LLC model has been around for more than 20 years and tested in the courts. It is not a prohibited transaction for you to administer the investments of the IRA in this manner. There are rules that restrict how the money can be deployed, with the general principal being that everything has to be 100% exclusively for the benefit of the IRA and you cannot receive benefit or inject value personally into the IRA.

There are several professionals here on BP that provide both models of service. The custodians do not provide the IRA LLC model as that requires outside legal work they are not permitted to do in their role as custodian. Not all custodians support the IRA LLC as it can eat into their fee revenue by eliminating the need to have the custodian process all of the transactions.