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The Best Self-Directed IRA Solutions for 2024

The Best Self-Directed IRA Solutions for 2024

The Self-Directed IRA has become the most popular investment and retirement vehicle for alternative asset investors. This article will explore the two best Self-Directed IRA solutions for 2024: (i) Self-Directed IRA with Full-Service and (ii) Self-Directed IRA LLC with “Checkbook Control.”

What is a Self-Directed IRA?

All types of IRAs, including the traditional IRA, Roth IRA, SEP & SIMPLE IRA can be established as a “Self-Directed” IRA. A Self-Directed IRA is essentially an IRA that allows the IRA owner to invest in alternative assets, such as real estate, precious metals, and small businesses.

When IRAs were created in 1974 by ERISA, the Internal Revenue Code (“IRC”) did not distinguish between an IRA that invests in traditional assets, such as stocks, and alternative assets. The IRC simply holds pursuant to IRC sections 408 and 4975 that an IRA investor can essentially invest in any type of asset except the following: (i) life insurance, (ii) collectibles, and (iii) a prohibited transaction involving the IRA and any “disqualified person,” which is generally defined as the IRA holder and any of his or her lineal descendants and/or any entities controlled by such persons. 

The Full-Service Self-Directed IRA

A full-service Self-Directed IRA offers an investor more investment options than an IRA that can be opened at any financial institution. A special custodian, such as IRA Financial, will serve as the custodian of the IRA. Unlike a typical financial institution, such as Vanguard, a full-service Self-Directed IRA custodian generates fees simply by opening and maintaining IRA accounts and does not sell investments or provide investment advice.

The IRA funds are generally held with the custodian and, at the IRA holder’s sole direction, the custodian will then invest those funds into the alternative asset investments chosen. The investment will be made in the name of the Self-Directed IRA, such as: IRA Financial Trust Company FBO John Doe IRA.

For 2024, the full-service Self-Directed IRA is best for investors looking to invest into an alternative asset investment that is not expected to involve a high number of transactions or requires the need for limited liability protection. The following are the most popular alternative investments for a Self-Directed IRA investor in 2024:

  1. Real estate
  2. Credit funds
  3. Hard money loans
  4. Private business investments
  5. AI venture capital
  6. Cryptocurrency

The Self-Directed IRA LLC with “Checkbook Control”

The Self-Directed IRA LLC with “checkbook control” may be the most popular vehicle for investors looking to make alternative assets investments. With a Self-Directed IRA LLC, a limited liability company (“LLC”) is established and is owned by the IRA and managed by the IRA owner. The “Checkbook IRA” structure allows the investor to act quickly when the right investment opportunity presents itself cost effectively and without delay. It also offers a greater degree of privacy than the full-service Self-Directed IRA since the IRA investment is made in the name of the LLC versus the IRA. In addition, using an LLC owned by the IRA provides limited liability protection to the IRA owner on all IRA assets owned outside of the LLC.

The primary reasons to use an LLC over a corporation when making an investment is pass-through taxation. The main advantage of using an LLC versus a sole proprietorship is limited liability protection.  Protecting one’s assets outside of the LLC is extremely important to many business owners and investors and this is why using an LLC as a shield against a creditor attack on the LLC’s owner’s assets outside of the LLC is so important.

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An Example of the Checkbook IRA

“Lisa Jones” establishes an IRA with IRA Financial Trust to buy a home in Florida. Lisa rolls over $200,000 from her former employer’s 401(k) plan, tax-free to IRA Financial. She works with IRA Financial to establish an LLC in the state of Florida and names the LLC LJ Investments LLC. IRA Financial acquires a Tax EIN for the LLC and even provides an LLC operating agreement showing the IRA as the owner of the LLC and Lisa Jones as the manager.

IRA Financial then opens an LLC bank account for LJ Investments LLC with Capital One bank, its banking partner. IRA Financial then sends the funds from the IRA to the LLC via the bank account at Capital One. Jones, as manager of the LLC, then wired the funds to the seller of the real estate. Title to the real estate will be titled in the name of the LLC and not the IRA since the IRA owns the LLC, and the LLC is the entity making the investment into the real estate.

The following are the most popular investments for a Self-Directed IRA LLC investor:

  1. Multi-family rental real estate
  2. Raw land
  3. Founder stock
  4. Carried Interest investment
  5. International real estate
  6. Cold wallet cryptocurrency investments

Does IRA Financial Set Up the IRA LLC?

Yes! IRA Financial will handle all functions relating to the establishment of the Self-Directed IRA LLC. They will establish the special purpose LLC, acquire the IRS EIN, and also draft the IRS required special purpose Self-Directed IRA LLC operating agreement. In addition, the IRA Financial tax team will help you structure your investment to minimize tax and maximize investment and retirement benefits.

IRA Financial charges a one-time establishment fee to establish the Self-Directed IRA LLC. Note: Depending on the state of formation, the annual state LLC fee generally ranges from $50-$200, other than California which has an annual franchise fee of $800.

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There is no right or wrong answer when deciding what Self-Directed IRA solution is best for you in 2024.  A full-service Self-Directed IRA can always be moved into an IRA LLC without tax if needed. If the cost of establishing and maintaining an LLC is not an issue, then the Checkbook IRA LLC solution is the more popular option because it offers one the ability to gain greater investment freedom, limited liability protection, as well as speed and cost efficiency when making Self-Directed IRA investments!


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