With a Self Directed IRA LLC, you as the manager of the LLC, will have “checkbook control” over the funds allowing you to make Self Directed IRA investments by simply writing a check. Along with “checkbook control”, there are a number of advantages of using an LLC to make an investment using your Self Directed IRA.
Limited Liability Protection: The LLC offers its members, in the case of an IRA, limited liability. Owners and members of the LLC are not liable for the debts, obligations, and liabilities of the LLC. Since, in most cases, your retirement account may be your most valuable asset, protecting them from attack from creditors is essential. By using an LLC, you would be able to shield all your IRA assets held outside the LLC from creditor attack. The following are several examples that illustrate the limited liability benefits of using an LLC to make Self Directed IRA investments:
John has $500,000 in an IRA and wants to purchase real estate. John establishes a Self-Directed IRA LLC that will be owned 100% by his IRA. John directs his IRA passive custodian to invest $200,00 in to the new LLC and the LLC purchases the property. In year 3, an accident occurs on the property owned by the LLC and the LLC is sued. Unfortunately, John’s insurance policy will not cover the entire claim. Because John used a Self-Directed IRA LLC to purchase the property and did not make the investment directly through a custodian, the $300,000 of IRA funds held outside of the LLC will be shielded from creditor attack due to the limited liability feature of the LLC. If John had made the real estate investment directly via a custodian without using an LLC, his entire IRA would have been subject to attack by creditors.
Privacy: Along with limited liability protection, the LLC offers its owner(s) privacy, confidentiality, and discretion when making investments. Because most states do not require the name of the member(s) of the LLC to be made publicly available when forming an LLC, by using an LLC, the IRA holder can shield its identity when making an investment. Whereas, if the IRA holder made the investment directly through an IRA custodian (without using an LLC), the IRA holder’s name would be included on all the real estate and title related documents and would be publicly available. For example, if John Davis used his IRA to make a real estate investment and made the investment directly through ABC Trust Company, the IRA custodian, title to the property would be generally titled in the following manner: ABC Trust Company, Custodian of the John Davis IRA. Whereas, in John made his real estate investment using a Self-Directed IRA LLC, only the name of the LLC would be included on the title documents and related real estate documents. What this means is that anyone looking to identify the owner(s) of the property will have a very difficult time finding it.
Example 1: John has $300,000 in an IRA and wants to buy real estate. John establishes a Self-Directed IRA LLC that will be owned 100% by his IRA. John uses a generic name for the LLC, which does not reference his name or the name of the IRA custodian. John directs his IRA custodian to invest the $300,00 to the new Self-Directed IRA LLC and the LLC purchases the property. John has had some financial difficulties and owes several people money. Because John has used a Self-Directed IRA LLC to make his real estate investment, the creditors will have an extremely difficult time identifying John’s IRA assets for potential attack.
Example 2: John has $300,000 in an IRA and wants to buy an apartment building. John establishes a new LLC that will be owned 100% by his IRA. John uses a generic name for the LLC, which does not reference his name or the name of the IRA custodian. John directs his IRA custodian to invest the $300,00 to the new LLC and the LLC purchases the building. The apartment building has 5 units and the tenants will pay their rent by writing monthly rental checks. By using an LLC, John is able to shelter from the tenants the identity of the owner of the building – his IRA. This way, a disgruntled tenant would have a far more difficult time identifying the owner of the building for litigation or other purposes. In addition, any creditors of John personally would also have a difficult time identifying the LLC as being associated with John’s IRA.
By using an LLC to make a Self Directed IRA investment, you will benefit from limited liability protection and privacy protection when making Self Directed IRA investments.