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What are the Self-Directed IRA Advantages?

Self-Directed IRA Advantages
3 Minute Read

Self-Directed IRA Advantages

A Self-Directed IRA LLC (self-directed individual retirement account or SDIRA) is an individual retirement account that puts the investor (you) in charge of all your investment decisions. By using a Self-Directed IRA, as opposed to a traditional IRA, you’re now able to diversify your investment opportunities outside of stocks or bonds. The structure of a SDIRA differs from a traditional or Roth by the assets held in your retirement account.

Your Self-Directed IRA LLC is an IRA structure that gives you more control over your retirement funds. It’s important to note that, not all self-directed IRAs are the same. As a result, you won’t find this term anywhere in the Internal Revenue Code.

A Self-Directed IRA LLC works for all types of IRAs:

  • Traditional (pre-tax IRA)
  • Roth IRA
  • Simple IRA

With your Self-Directed IRA, you can invest in anything, except life insurance and collectibles. Also, you cannot engage in prohibited transactions. You can find prohibited transactions in Code Section 4975. We’ll also go over the transactions shortly. Other than these restrictions, your only limit with a self-directed IRA LLC with checkbook control is your imagination.

There are, essentially, three types of Self-Directed IRAs. Today, we’re going to delve into the “Checkbook Control Self-Directed IRA LLC” and see how you can benefit from it.

Self-Directed IRA Advantages – Checkbook Control

Many of you may ask, “What is a checkbook IRA?” A Self-Directed IRA with checkbook control is the most popular way for investors to make alternative investments. When you make an investment with checkbook control, it’s as simple as writing a check or wiring funds from your account.

The Checkbook IRA format is straightforward:

  • You establish a limited liability company (LLC) to open a checking account. The IRA funds and owns the LLC, but you manage it.
  • Your retirement funds are transferred from your IRA to your new custodian in your self-directed IRA account.
  • Create a bank account for your LLC (in the name of your LLC).
  • Notify your IRA custodian that you wish to have your funds sent to your new LLC bank account. Now, the IRA assets will transfer to your LLC for investments.
  • One IRA will own the LLC, so it will be treated as a disregarded entity for federal tax income purposes. In other words, all income and gains will return to the IRA tax-free.

The owner of the LLC will be subject to tax, not the LLC itself. However, since the IRA is tax-deferred, you don’t pay taxes until you reach retirement age.

Establish Your Checkbook Control LLC Today

You can set up a “Checkbook Control” self-directed IRA LLC structure in a matter of days. First, seek the consultation of a professional financial group, such as IRA Financial, the best in checkbook control Self-Directed IRAs. You will receive the assistance of a Self-Directed IRA expert to set-up your structure. Set-up can take between 7-21 days to complete. The time-frame is largely dependent upon the state of formation and the custodian holding your retirement funds.

There are many advantages to a Self-Directed IRA LLC, which may be why it’s growing in popularity. It gives your portfolio diversity and enables you to have full control over your finances. Additionally, you can invest in what you know and understand, which can decrease the risk of losing your funds.

With your Self-Directed IRA LLC, you have a world of investment opportunities, including:

  • Domestic or foreign real estate (rentals, foreclosures, raw land, tax liens etc.)
  • Private businesses
  • Precious metals (gold or silver)Hard money
  • Peer to peer lending

Moreover, you no longer need custodian consent, which gives you the opportunity to make investments as they present themselves.

Roth IRA

A Roth IRA works similarly and is subject to the same rules as a Traditional IRA. The only difference is, a Roth IRA generates tax-free income, whereas on a Traditional IRA, tax is deferred to a later date during tax-time. Therefore, in the case of a Roth IRA, earnings and gains aren’t subject to income tax ever. So long as the Roth distribution satisfies a few simple conditions.

  • The distribution must be qualified
  • The Roth IRA must be established more than five years
  • You (the Roth IRA owner) must be over 59 ½

You can make contributions to a Roth IRA, but there are contribution limits. For the year 2022, the annual contribution limit for an individual under age 50 is $6,000.  If you are age 50 or older, you can take advantage of the $1,000 catch-up for a total contribution limit of $7,000. However, not all taxpayers can make Roth IRA contributions. That’s where the Backdoor Roth IRA comes in.

Backdoor Roth IRA

If you’re an individual who exceeds the annual contribution limits above, you can still make Roth IRA contributions. Because there is no limit for conversions, if you’re above AGI limits, you can now make contributions. This is known as “Backdoor” Roth IRA.

It’s important to note, any contributions you make go into a tax-deductible traditional IRA. This is perfectly legal and allows you to make large investments tax-free.

Now that you know the benefits, learn the workings of a Self-Directed IRA LLC.

When you’re ready to set up a Self-Directed IRA LLC, contact us today and we’ll assign you with an IRA specialist to assist you.

Did you know?

Your “Checkbook Control” Self-Directed IRA LLC will be owned by your IRA care of the IRA custodian and managed by you.

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