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Using a Trust or an LLC for Your Self-Directed IRA – Episode 253

Adam Talks

IRA Financial’s Adam Bergman Esq. discusses the differences between using a trust or an LLC for your Self-Directed IRA, and why the LLC is generally the better option for most investors.

When investors want to invest in alternative assets, such as real estate and precious metals, the first thing they do is set up a Self-Directed IRA. When Mr. Bergman first started out, he would often have his clients set up trusts for their IRA. However, over the years, it became clear that an LLC is better suited for most investors. In this podcast, Mr. Bergman will talk about the differences in using a trust or an LLC for your Self-Directed IRA account.

Trust vs. LLC

A trust is basically a legal vehicle that allows a third party (a trust/you) to hold and direct assets in a trust fund on behalf of the beneficiary. Essentially, it’s an agreement among three parties – a grantor, a trustee and a beneficiary. There’s no paperwork to file as it’s just an agreement among the parties. There are some differences as to what’s considered a trust, depending on the state you live.

An LLC is a limited liability company, which, as the name implies, offers protection for your assets. In most cases, a creditor cannot go after assets held within the LLC. There are filing fees to set up and maintain an LLC, which vary from state to state.

The main advantage to a trust, in most states, is that there are no fees for setting one up. It will allow you to make investments with your IRA without the need of an LLC. There are filing requirements with a trust, however there is also a level of privacy, since a trust does not need to be filed with the state. However, in most cases, a trust is not the way to go.

On the other hand, an LLC provides you with protection and there is no tax requirements at the entity level. Taxes flow through the LLC to the owner. In this case, the IRA is the owner, which is tax-exempt until you distribute funds from the plan. This makes the better option for most investors.

Deciding What’s Right for You

The whole point of a Self-Directed IRA is to make alternative investments, in a timely matter. An LLC allows this much better than a trust. It doesn’t make sense to set up a trust, just to save a few bucks on setting up an LLC. Privacy may be a factor for those that want some anonymity for their IRA investments. However, it’s not completely anonymous.

There are filing requirement for each plan, though taxes aren’t due for the IRA. Further, an LLC, which gives you checkbook control, is much more important for real estate investors. The ability to have access to your IRA funds whenever you want, along with protection the LLC provides may be the key for your investments.

Whichever you choose, it’s extremely important to work with a tax professional that specializes in the particular setup you choose – a trust or an LLC. In the end, you want to protect the assets held by your Self-Directed IRA. Therefore, it’s crucial that you follow all the rules and regulations set forth by the IRS and other governmental bodies.

Lastly, we recently wrote an article about this same subject, which might help some listeners better grasp this concept. Check it out!

Thanks for Listening!

As always, we appreciate the time you’ve taken to listen to the podcast. We hope you were informed about the differences of using a trust or an LLC for your IRA. Be sure to check out our SoundCloud page for all of our podcasts. We’ll see you next time!


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