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Self-Directed IRA LLC Definition

A self-directed IRA (SDIRA) is a type of individual retirement account. It allows retirement investors to use their IRA funds to make alternative asset investments.  Self-Directed IRAs aren't much different than traditional IRAs, however a self-directed IRA offers more investment options. By using a self-directed IRA, you can diversify your investment opportunities and make investments outside of stocks, bonds, mutual funds, etc.. In other words, you can make much more than traditional asset investments.

With a Self-Directed IRA, you still have the option of investing in traditional assets. For investors who feel more comfortable investing in assets like real estate and precious metals, the structure of a SDIRA allows you to do so, and diversify the assets inside of your retirement account.

Additionally, this type of IRA structure gives you more control over your retirement funds. Keep in mind, not all self-directed IRAs are the same. As a result, you won’t find this term anywhere in the Internal Revenue Code.

With your self-directed IRA, you make any type of investment, excluding life insurance and collectibles. You can find the full list of prohibited transactions in IRC (Internal Revenue Code) Section 4975, but we’ll go over the transactions shortly.

Other than a few investment restrictions, your only limit with a self-directed IRA is your imagination.

A self-directed IRA works for all types of IRAs:

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

In other words, you can use any of these IRAs to make alternative asset investments.

Custodian vs. Checkbook Control

Many traditional IRA custodians advertise themselves as offering a Self Directed IRA. What this really means is, you will need approval from your custodian before making an investment. Additionally, many IRA custodians will likely limit you to stocks, bonds and other traditional investments.

In order to diversify your retirement and make non-traditional investments, you will need to work with a self-directed IRA custodian, such as IRA Financial Trust.

In the case of a “truly” Self Directed IRA, a limited liability company (LLC) is established that the IRA account owns and the IRA holder manages. This provides the IRA holder with “checkbook control” over his or her funds.

There are three categories of self-directed IRA structures. You can distinguish them by the level of control the custodian exercises over your IRA investments.

Financial Institution Self-Directed IRA

With a financial institution self-directed IRA, you can direct your IRA investments, but generally you can only invest in the financial products offered by the financial institution. For example, a financial institution such as Vanguard will often limit your investments to traditional assets, like stocks and mutual funds.

With a financial institution self-directed IRA, you cannot make non-traditional investments such as real estate, precious metals or private business investments.

Custodian Controlled Self-Directed IRA Without “Checkbook Control”

A second type of self-directed IRA structure is custodian controlled. With this structure, many types of nontraditional investments, such as real estate, are permissible. However, you need custodian consent to enter into and execute the transaction.

For example, before engaging in an IRA investment, you must receive the consent of the custodian. To this end, you have to provide the custodian with the transaction documents for review as part of their transaction review process.

As a result, it is common to experience time delays as well as high annual fees and additional transaction fees. If you're a moderately active investor with $50,000 in assets, you may pay anywhere from $400 to $600 in aggregate annual fees.

Fees include:

  • Account value fee
  • Transaction fees
  • Approval letters

In addition, there is no guarantee that the custodian will approve your investment even if it doesn't violate IRS rules. A self-directed IRA with custodian control allows you to make non-traditional investments, but time delays and high custodian fees are the common characteristics of choosing the custodian-controlled structure.

Self-Directed IRA LLC with “Checkbook Control”

With a “truly” Self Directed IRA, you will have total control over your IRA funds with a self-directed IRA LLC. You no longer need the custodian of your account to approve every investment. Instead, all decisions are truly yours. When you find an investment, simply write a check or wire the funds straight from your Self Directed IRA LLC bank account.

How a Self-Directed IRA LLC Works

With a Self-Directed IRA LLC, a limited liability company (LLC) is established. Tthe IRA account owns the LLC, and you, the IRA holder, act as manager. The IRA Holder’s IRA funds are then transferred by the Custodian to the LLC’s bank account. This provides the IRA holder with “checkbook control” over his or her IRA funds.

The Self Directed IRA LLC “Checkbook Control” structure has been approved by the U.S. tax court and has been widely popular for over 20 years. The notion of using an entity the IRA owns in order to make investments was first reviewed by the Tax Court in Swanson V. Commissioner 106 T.C. 76 (1996).

In Swanson, the Tax Court, in holding against the IRS, ruled that the capitalization of a new entity by an IRA for making IRA related investments was a permitted transaction. In other words, it was not prohibited pursuant to Code Section 4975. The Swanson Case was later affirmed by the IRS in Field Service Advice Memorandum (FSA) 200128011.

The Self Directed IRA LLC allows you to eliminate the delays from an IRA custodian. Instantly make investments as the opportunity presents itself.

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

In three Steps, here is how you can establish your Self-Directed IRA LLC:

self-directed IRA LLC by IRA Financial Group


We wrote the book on Self-Directed IRAs

The second installment in a four-part series, The Checkbook IRA: Why You Want it, Why You Need it, explores important topics regarding the self-directed IRA and why it has become the leading retirement structure to purchase real estate using IRA funds.

Following the success of Adam Bergman’s previous self-directed IRA book comes Self-Directed IRA in a Nutshell, a straightforward explanation on what IRA investors need to know about self-directed IRA retirement structure.

Learn more about the books →

Get in Touch

Do you have questions regarding how the self-directed IRA will benefit you that were not covered in this article? Call IRA Financial Group at 800-472-0646. You can also fill out the form to speak with an IRA specialist. For more information on our services, please visit our services page.





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