First SDIRA purchase

[Tim Greenfield]

So as I understand it, the reason for setting up and LLC is for Checkbook SDIRA. I do not have an LLC but I have contacted my SDIRA holder and I am ready to purchase my first property. I can do it all cash for a duplex but I don't have an LLC. SDIRA holder said it would be 3 days to send funds. Other than ensuring that the SDIRA receives all of the deposits and pays out all funds for expenses/closing for this property am I missing anything?

Thanks

Tim

[Brian Eastman]

@Tim Greenfield

You have a custodian held SDIRA.  That will work for holding real property, but I think you will find it inefficient over time.

In your structure, the custodian does all of the transacting for the benefit of your IRA. They will need to sign every document, pay all expenses and receive all deposits. Every action will take 3 days to process and will come with per-transaction or per-asset fees.

If you were to push the IRA to the back a step and have it make a single investment into a specially crafted LLC, then you would have more direct control over the investments you make. The IRA would own the LLC, but you could act as manager for the LLC and conduct the activities of the LLC. You would hold the funds in a LLC business for which you have signing authority and you could then; vest title to property in the name of the LLC and add a layer of asset protection, sign contracts, directly pay for expenses, and deposit the income produced by your property to the LLC account.

You would be able to act more immediately and reduce paperwork and fees.

More importantly, if you choose to work with a quality provider of such plans, you would have access to meaningful advise related to the investments you are making and compliance with IRS guidelines.  Custodians are simply processors and are prohibited by rule from providing tax, legal or investment advice.

After you complete your current transaction and see how things go for a while, know that you have the option to change/upgrade the structure in the future should you determine the IRA LLC will be a more appropriate tool for the type of investing you are doing.