Is Your IRA-Owned Business Entity a “Sitting Duck” for Lawsuits?

[William Hull]

Self-directed individual retirement accounts are good ways to save for retirement with assets such as real estate or precious metals. Conventional IRAs usually only service assets such as stocks, mutual funds, and CDs. Most individuals with real estate holdings in a self-directed individual retirement account,known as an IRA, have considered creating an LLC to help protect those investments. This protects the assets from actions of the trustee without permission of the beneficiary. However, this method of protection has some serious down sides. Since the trustee and beneficiary are often the same person in cases such as this, unethical decisions made by this person often effect other members of the group more so than the perpetrator. While it is unlikely that the trustee for your self-directed IRA will betray your trust, it is possible and permissible within this set up. One example of this involves a trustee running a Ponzi scheme, and using the IRA funds to repay his victims. A solution to this problem is to set up a self-directed 401(K) rather than a self-directed IRA. This is a better solution because investors maintain almost all of the control regarding their assets in this scenario.

Key Takeaways:

• Retirement plans and IRAs are key for growing your money tax deferred until you withdraw your savings at a later date.
• Getting sued is just one of those life events that no one really plans for.
• The best way to deal with the prospect of a negative situation is to protect yourself from the potential pitfalls in advance.

"If you have real estate in a self-directed individual retirement account (IRA), then you likely have at least considered setting up an LLC, called an IRA LLC, within that self-directed IRA in order to further insulate those investments."

Read more: https://thinkrealty.com/is-your-ira-owned-business-entity-a-sitting-duck-for-lawsuits/