Multiple, simultaneous options for Self-Directed IRA accounts?

[Eric Chase]

Greetings BP gang!

I only discovered SD-IRAs recently and I'm trying to get smart on their potential. My wife and I each have about $57K in our respective Roth IRAs. We're interested in pulling all these funds and using them for real estate. I know we can pool these funds together to create an LLC, and I understand the arm's-length concept. My question is, once doing this, can we employ multiple strategies simultaneously within the same account? For example, of our pooled $114K, could I use $65K for a down payment on a SFR rental, another $20K for lending, another $20K for notes, and then keep $9K of reserves for any potential huge repair/expenditure for the property? What would this look like?

My primary concern is utilizing as much of the $114K as possible without having too much "sitting on the sidelines" and not growing.

Thoughts? @Linda Weygant, we spoke a couple months ago and you essentially turned me on to the idea! Could you please chime in?

Thank you, everyone! 

Cheers!

Eric

[Brian Eastman]

@Eric Chase

Firstly, I would advise against pooling your IRA accounts into a single LLC. While this sounds "simpler", it actually creates significant administrative complexity down the road as the LLC will need to file a partnership tax return, and may not accept future contributions from either of the IRA accounts. Single member IRA LLCs are much more flexible and cost effective over the long term.

With that in mind, if you can make investment A with your IRA LLC and your wife can make investment B with hers, then that is clearly simplest and cleanest. If you do that, and then have enough funds such that by joint-venturing the two LLCs you can accomplish investment C together, that is fine and can be done so long as things are kept pretty rigid and in line with the initial equity participation of the two LLCs.

To your core question, an IRA LLC may make multiple investments. Think of the LLC as a "fund" that the IRA has invested into, where you get to be the fund manager. That fund capital may be deployed into all range of individual assets, so long as any investment is conducted within the IRS guidelines.

If you end up with a small amount of excess capital in reserves or earnings, the LLC can always open a trading account and buy some index funds, or open some kind of CD. A self-directed IRA expands your choices beyond conventional financial products, but still has the capacity for that type of investing.