Private Lending in SDIRA: Traditional vs Roth?

[Ray Li]

I'm considering setting up SDIRA LLC for doing private lending. Seems like that's the best way to invest that while avoid UBIT.

My IRA money is in a traditional IRA right now.

I know the main decision factor between leaving the money in traditional IRA vs converting to Roth is based on how much I expect my tax rate to be when I'm 65 vs my tax rate now. But is one of them better than the other, strictly with respect to the investment method (interest income from private lending)?

Also does anyone have any checkbook IRA LLC they recommend? I think I've seen some people using IRA Services.

Thanks,

Ray

[Brian Eastman]

@Ray Li

Whether to convert or not is a complex matter, with no one-size-fits all answer.  Many variables such as your age, income, tax bracket, amount to convert, etc. come into play.  It is best to have such a conversation with your licensed tax advisor.  Generally speaking, the longer the funds will remain in the Roth, and the higher the amount of return, the more likely you are to see an increase in the amount of after-tax spendable money in your plan.  You also have to look at the opportunity cost of the amount you use to pay the taxes, it is not just a straight route to breakeven based on the performance of the Roth account alone.

A checkbook IRA will be useful if you plan to have a reasonable number or notes or frequent turnover. Such a plan will save you paperwork and fees over the services of a custodian pretty quickly in that case. It does cost more to establish checkbook control initially, but will reduce operating costs over the long term. IRA Services does not offer the legal services necessary to establish a checkbook IRA LLC. They are simply a custodian. Some firms that do establish checkbook control use them as the back-end custodian.