In general, one should form the self-directed IRA special purpose Limited Liability Company (LLC) in the state where the investment will be made. This is especially important in the case of a real estate investment, since most states will deem an LLC engaged in a trade or business in that state if the LLC owns real estate. However, if the investment to be made is not real estate, but, for example, a private loan, gold, or a private business stock transaction, the state of the LLC formation is not as crucial since that LLC will likely not be engaged in a trade or business by making that investment.
A number of people mistakenly believe that the LLC should be formed in the state where the IRA holder resides or has an address. This is not accurate, since the LLC will not be owned by the IRA holder, but will actually be owned by the IRA custodian care of the IRA holder. Thus, in the case of real estate, the state of investments is what should drive the state of the LLC formation, not the residence of the individual IRA holder. In the case of a non-real estate IRA investment, the state of LLC formation is not as crucial.
To learn more about how to select a state of formation for a self-directed IRA LLC, please contact a tax expert at 800-472-0646.