The real estate IRA, also known as the Self Directed IRA LLC or the Self Directed Checkbook IRA is a tax structure that allows one to use their retirement funds to buy real estate tax-free and without custodian consent.
The real estate IRA structure works as follows:
1. Tax-Free Transfer of Funds to a New Custodian.
Your retirement funds will be transferred tax-free from your current custodian to a new FDIC backed/IRS approved Passive Custodian that allows for truly Self Directed IRA real estate investments. With a real estate IRA or Self Directed IRA LLC with checkbook control, you no longer have to pay excessive custodian fees based on account value and transaction fees in order to do a real estate transaction. By using a real estate IRA with checkbook control you can take advantage of using your IRA funds to buy real estate without tax without incurring excessive custodian fees and custodian created delays.
2. Creation of Real Estate IRA:
A real estate IRA LLC will be formed in the state where the real estate investment will be made. It is important to work with a tax professional to make sure the LLC is formed correctly and in compliance with IRS rules relating to IRAs.
3. Open a local bank account for Real Estate IRA LLC
Once your real estate IRA LLC has been formed, you will need to take the Articles of Organization, LLC Tax ID#, and LLC operating Agreement to a local bank in order to open the real estate IRA LLC bank account.
4. Transfer of IRA Funds to New Real Estate IRA LLC Bank Account
As the IRA holder, you will direct the IRA Passive Custodian to transfer the IRA funds to your new real estate IRA LLC bank account. The IRA would then become a member of the real estate IRA LLC.
5. Appointment of Manager of the Real Estate IRA LLC
As the Manager of the real estate IRA LLC, you will have the freedom to make a real estate investment, domestically or internationally, quickly and without custodian consent. As Manager of the real estate IRA LLC, you will be able to write a check or wire money from the IRA LLC bank account to make an Investment.
6. The Real Estate IRA Investment is Made
As manager of the real estate IRA LLC, you will have the authority to make a real estate investment on behalf of your real estate IRA LLC. The Investment must be made in the name of your real estate IRA LLC. All income and gains generated by your real estate RA LLC will generally flow back to the IRA tax-free!