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The South Dakota Self-Directed IRA LLC for Real Estate

The South Dakota Self-Directed IRA LLC for Real Estate

A Self-Directed IRA is a type of IRA structure that allows one to have more control over his or her retirement funds. It is a retirement account vehicle that is best known for allowing investors to buy alternative assets, such as real estate.

Why Setup a Self-Directed IRA?

Since the creation of IRAs in 1974, alternative investments, such as real estate, have always been permitted to be invested in by IRAs, but few people seemed to know about this option until the last several years.  Why? Most traditional financial institutions do not want to be bothered with “alts.” They want to sell you the products they are most knowledgeable about. Plus, when you invest in real estate or other alts, they’re not earning interest on you.

There are two main advantages of establishing a Self-Directed IRA to make real estate investments:

  1. Investment diversification
  2. Income and gains will generally flow back to the IRA without tax

Diversifying your holdings is a key component to every investor’s strategy. It should always extend to your retirement plan investments. With a Self-Directed IRA, it’s up to you to decide how to do that. You can invest in anything not prohibited by the IRS (essentially, life insurance and collectibles and transaction involving a disqualified person).

Plus, you can invest in hard assets you know and understand. You are not forced into stocks, mutual funds, ETFs and other asset classes you may not fully comprehend. It doesn’t matter if it’s real estate, metals, private businesses, cryptos, private placements. You can do it with a Self-Directed IRA.

Best of all, all the investments held inside your IRA are not taxable! Income and gains generated are not taxable so long as they remain in the account. Only pay tax when you distribute funds (or assets) from the plan. If you go “Roth” with your IRA, qualified distributions are never taxable!

The South Dakota LLC Advantage

The state of South Dakota does not have a state income tax or franchise tax. The LLC must file an annual report with the South Dakota Secretary of State. The Office of the Secretary of State must receive the annual report prior to the anniversary date. This must be done so as to avoid late filing penalties. The fee for filing the annual report is just $50.

The South Dakota limited liability company state statute can be found here.

Because IRA Financial Trust has an office in South Dakota, IRA Financial can serve as the LLC registered agent for no fee. Hence, establishing a Self-Directed IRA LLC in South Dakota will allow you to invest in real estate fund-type investments with no federal income tax, no state income tax, as well as no federal or state income tax filing requirements.

Self-Directed IRA LLC with Checkbook Control

The Self-Directed IRA LLC with “checkbook control” has quickly become the most popular vehicle for investors looking to make alternative assets investments. Under the Checkbook IRA format, a South Dakota limited liability company (“LLC”) is created. It is funded and owned by the IRA, and managed by the IRA holder. It allows one to eliminate certain costs and delays often associated with using a full-service IRA custodian.  The structure allows you, the investor, to act quickly when the right investment opportunity presents itself cost effectively and without delay.

Your IRA will benefit from the limited liability protection afforded by using an LLC; all IRA assets held outside the LLC will be shielded from attack. This is especially important in the case of IRA real estate investments where many state statutes, including South Dakota, impose an extended statute of limitation for claims arising from defects in the design or construction of improvements to real estate.


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