Yes – a self-directed IRA LLC can have one IRA owner or more than IRA as a member of the LLC. A self directed IRA LLC owned by one IRA is treated as a disregarded entity for federal income tax purposes. Meaning the LLC is treated as a tax nothing, but is respected for limited liability purposes. Accordingly, the single member LLC is not required to file a Federal Income Tax Return and, in most cases, a state income tax return. Whereas, a multiple member LLC is treated as a partnership for Federal Income tax purposes and, thus, a federal income tax return for Federal Income tax purposes. Hence, when one IRA owns a self-directed IRA LLC, generally no federal or state income tax return is required to be filed.
There are a number of advantages of using a separate LLC for each IRA. Firstly, there would be no Federal Income tax return since the LLC will be treated as a disregarded entity. Secondly, isolating each IRA in a separate LLC will allow you to select the specific investment for each IRA investment. This becomes especially important when a Roth IRA is involved since one would generally want to be able to select the specific Roth IRA investment without having to have all the income and gains divided pro rate between the multiple IRA accounts in the LLC. Thirdly, if IRA from multiple parties is being used (i.e. spouses), a change in the relationship, such as a separation or divorce can complicate the management of the IRA LLC investments since both parties would likely be managers of the LLC and would have to agree on all decisions involving the LLC. Fourthly, if one of the IRA holders will be required to take Required Minimum Distributions (“RMDs”) and either there is a Roth IRA or another person’s IRA as member of the LLC, this can cause the other member or the Roth IEA to be forced to take a distribution since all LLC distributions must be pro-rata. Note the other member can re-contribute the funds back into the LLC without paying tax, but that would likely cause a recordkeeping nightmare for the LLC manager.
To learn more about the advantages of using a single member special purpose LLC for each IRA investment, please contact an IRA expert at 800-472-0646 or visit www.irafinancialgroup.com