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Self-Directed IRA LLC Investments
What You Can Invest in With a Self-Directed IRA
A Self-Directed IRA LLC offers you the ability to use your retirement funds for almost any type of investment. You can do this without custodian consent. The IRS only describes prohibited investments, which are few.
The main advantage of using a self-directed IRA is to make investments that generate tax-deferred or tax-free gains. Additionally, you can now invest in what you know and understand.
For 2019, the following are examples of investments you can make with your Self-Directed IRA LLC:
- Residential or commercial real estate
- Domestic or Foreign real estate
- Raw land
- Foreclosure property
- Mortgage pools
- Hard money lending
- Private loans
- Tax liens
- Private businesses
- Limited Liability Companies
- Limited Liability Partnerships
- Private placements
- Precious metals and certain coins
- Stocks, bonds, mutual funds
- Foreign currencies
- Hedge Funds
- Private Equity Funds
Using a Self-Directed IRA LLC to make investments offers the ability to make traditional as well as non-traditional investments in a tax-efficient manner.
Below are some of the most popular reasons to purchase non-traditional assets with your Self-Directed IRA LLC.
The IRS permits using a Self-Directed IRA LLC to purchase real estate or raw land. Real estate is the most popular investment you can make with a Self-Directed IRA. Making a real estate investment is as simple as writing a check.
Since you are the manager of your Self-Directed IRA LLC, you have the authority to make investment decisions on behalf of your IRA. One major advantage of purchasing real estate with a Self-Directed IRA is that all gains are tax-deferred until a distribution is taken.
Traditional IRA distributions are not required until the IRA owner turns 70 1/2. In the case of a Self-Directed Roth IRA LLC, all gains are tax-free.
For example, if you purchase a piece of property to flip homes with your Self-Directed IRA for $75,000 and later sold the property for $150,000, the $75,000 of gain is generally tax-free.
Whereas, if you purchase the property using personal funds (non-retirement funds), the gain is subject to federal income taxes and in most cases state income tax.
The IRS permits the purchase of tax deeds and tax liens with a Self-Directed IRA LLC. By using a Self-Directed IRA LLC to purchase tax-liens or tax deeds, your profits are tax-deferred back into your retirement account until you take a distribution.
There is no requirement to take out a distribution with a Traditional IRA until you reach 70 1/2.
More importantly, as the manager of the IRA LLC, you have "checkbook control." This allows you to make purchases on the spot without custodian consent.
In other words, purchasing a tax-lien or tax deed is as easy as writing a check!
Loans & Notes
The IRS also permits the use of IRA funds to make loans or purchase notes from third parties. By using a Self-Directed IRA LLC to make loans or purchase notes from third parties, all interest payments you receive are tax-deferred until a distribution is taken.
Again, traditional IRA distributions are not required until the IRA owner turns 70 1/2. In the case of a Self-Directed Roth IRA LLC, all interest received would be tax-free.
For example, if you used a Self-Directed IRA LLC to loan money to a friend, all interest received would flow back into your IRA tax-free.
Whereas, if you loan your friend money from personal funds (non-retirement funds), the interest received is subject to federal and in most cases state income tax.
With a Self-Directed IRA LLC you can purchase an interest in a privately held business.
The business can be established as any entity other than an S Corporation (i.e. limited liability company, C Corporation, partnership, etc.).
When investing in a private business using IRA funds, it is important to keep in mind the “Disqualified Person” and “Prohibited Transaction” rules the Unrelated Business Taxable Income rules.
The retirement tax professionals at the IRA Financial Group will work with you to develop the most tax-efficient structure for using your IRA to invest in a private business.
Precious Metals & Coins
Internal Revenue Code Section 408(m) lists the type of precious metals and coins that you can invest in with your IRA funds:
- One, one-half, one-quarter or one-tenth ounce U.S. gold coins (American Gold Eagle coins are the only gold coins specifically approved for IRAs. Other gold coins, to be eligible as IRA investments, must be at least .995 fine (99.5% pure) and be legal tender coins.
- One ounce silver coins minted by the Treasury Department
- Any coin issued under the laws of any state
- A platinum coin described in 31 USCS 5112(k)
- Gold, silver, platinum or palladium bullion (other than bullion that is made into a coin) of a certain fineness that is in the physical possession of a trustee that meets the requirements for IRA trustees under Code Sec. 408(a).
When you use a self-directed IRA to purchase precious metals/coins the IRS approves, you can better diversify your retirement portfolio. Also, you generate tax-free gains on the sale of the metals or coins. If you're self-employed or a small business owner, you can use a Solo 401(k) Plan to make the same purchase and reap the same benefits.
IRC Section 408(m)(3)(A) lists the type of coins you can purchase with retirement funds. Generally, these are American Eagle and U.S. state minted coins of a certain finesse.
The Technical and Miscellaneous Revenue Act of 1988 also allows the purchase of state minted coins. Whereas, IRC 408(m)(3)(B), refers to gold, silver, or palladium bullion of a certain finesse. These coins must be held in the “physical possession” of a U.S. trustee, as described under subsection IRC 408(a). Essentially, this refers to a bank, financial institution, depository, or approved trust company.
IRA Financial Group suggests that all clients seeking to purchase IRS approved coins or precious metals/bullion with their retirement account hold them in the physical possession of a trustee, such as a depository.
The IRS clearly does not allow any individual to hold IRS approved coins or precious metals/bullion personally, such as in their house.
However, the Technical and Miscellaneous Revenue Act of 1988 Senate amendment seems to suggest that state minted coins can be held by a person other than the IRA holder. It does not reference the term trustee, as defined in IRC Section 408. Nevertheless, we recommend that IRS approved coins should not be held personally by the IRA holder. Precious metals and coins are better in the hands of a trustee, as defined in IRC 408.
If you have a Self-Directed IRA LLC or Solo 401(k) plan, we believe you should not hold precious metals and coins at a bank safe deposit box. The IRS has no formal guidance, therefore it has some risk.
For a Self-Directed IRA, if the bank holding the safe deposit box isn't the trustee of the IRA purchasing the precious metals or coins, then the metals or coins do not satisfy the physical possession definition. This is because the bank cannot serve as the IRA trustee.
The safest approach to holding IRS approved coins or bullion/precious metals is at a trustee, such as an approved depository. One thing that is clear, is an IRA holder should never hold IRS approved coins or precious metals/bullion personally.
The rules surrounding the ownership and possession of IRS precious metals or coins are complex. Therefore, it is crucial that you work with a firm, such as IRA Financial Group, that has the expertise and resources to help you navigate the IRS rules.
The advantage of using a Self-Directed IRA LLC with “checkbook control” to purchase precious metals and/or coins is that their value generally keeps up with, or exceeds, inflation rates better than other investments. In addition, the precious metals and/or coins can be held in the name of the LLC at a financial organization safe deposit box. This eliminates depository fees, and can be held at any local bank.
The IRS does not prevent the use of IRA funds to purchase foreign currencies, including Iraqi Dinars. Many believe that foreign currency investments offer liquidity advantages to the stock market as well as significant investment opportunities.
Purchasing foreign currency, such as the Iraqi Dinar, with a Self-Directed IRA LLC is as easy as writing a check. As manager of the IRA LLC, you will have “checkbook control” over your IRA funds, providing you with the ability to make investments without requiring custodian consent.
Additionally, the foreign currency notes, including Iraqi Dinars, can be held in the name of the LLC at a financial organization (any local bank) safe deposit box eliminating depository fees.
By using a Self-Directed IRA LLC to purchase foreign currencies, such as the Iraqi Dinar, all foreign currency gains generated would be tax-deferred until a distribution is taken. Traditional IRA distributions are not required until the IRA owner turns 70 1/2. In the case of a Self-Directed Roth IRA LLC, all foreign currency gains are tax-free.
The IRS treats Bitcoin and other cryptocurrency as property and not currency. The IRS is providing a potential boost to investors. However, it's also keeping extensive record-keeping rules and significant taxes on its use.
With IRA Financial Group’s Self-Directed IRA LLC bitcoin solution, you can use traditional IRA or Roth IRA funds to buy bitcoins tax-free.
IRA Financial Group’s Self-Directed IRA LLC for bitcoin investors, is an IRS approved structure that allows you to use your retirement funds to make bitcoin and other investments tax-free and without custodian consent. The Self-Directed IRA LLC involves the establishment of a limited liability company (LLC) that the IRA owns (care of the IRA custodian) and the IRA holder or any third-party manages.
As manager of the IRA LLC, the IRA owner will have control over the IRA assets to make traditional as well as non-traditional investments.
Stocks, Bonds, Mutual Funds, CDs
In addition to non-traditional investments such as real estate, a Self-Directed IRA LLC may purchase stock, bonds, mutual funds, and CDs. The advantage of using a Self-Directed IRA LLC with “Checkbook Control” is that you are not limited to just making these types of investments.
With a Self-Directed IRA LLC with “checkbook control” you can open a stock trading account with any financial institution. You can purchase real estate, buy tax liens, or lend money to a third-party. Your investment opportunities are endless!
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.