A self-directed IRA is a great investment choice for people looking to diversify their portfolio with alternative assets. 

Investing in assets like real estate, Bitcoin, or gold can insulate your wealth from inflation and grow it exponentially so that you can retire on your own terms. 

However, this only scratches the surface of what a self-directed IRA can truly offer. One incredible way to truly avoid taxes and supercharge your wealth is to convert your SDIRA into an LLC structure for retirement. 

But how does a self-directed IRA LLC work, and what stipulations govern its usage? We’ll answer all of that and more in this SDIRA LLC guide.  



Consult with Horizon Trust

What Is a Self-Directed IRA LLC?

A self-directed IRA LLC is a single-member limited liability corporation (LLC) owned and funded by your self-directed IRA (SDIRA). Also known as a “checkbook IRA,” a self-directed IRA LLC gives you checkbook control, meaning you don’t need to wait on your custodian to approve a transaction or complete an investment transaction.

 As the manager of your retirement LLC, you gain direct control over when and how your investments take place and the ability to move funds to and from your account at will.

With a self-directed IRA LLC, your custodian takes a backseat role, and their engagement is limited to compliance, reporting, and administrative activities, such as when you’re making contributions, rolling over funds from one account to another, or taking distributions. 

This offers many benefits to investors, not the least of which include greater control over your wealth. 

The Benefits of Investing with an LLC for Retirement

In addition to the tax benefits typically associated with a self-directed IRA account, opening an LLC unlocked several other benefits, including:

Enhanced asset access and flexibility 

Self-directed IRA LLCs make it far easier to invest in real estate and other commonly sought SDIRA assets, like tax liens, private loans, cryptocurrency, and precious metals, than a standard SDIRA account. 

Suppose you want to purchase SDIRA real estate without checkbook control. In that case, your custodian will complete the paperwork, adding more time to the deal. 

However, with checkbook control, the LLC is the primary player. As the non-compensated manager of the LLC, you can complete the property transaction much like any other LLC would, with no custodian required. 

Expedited transactions

In turn, greater control leads to greater efficiency over your investments. Because a self-directed IRA LLC reduces the custodian’s role, you benefit from increased transaction speeds. This can be particularly important if an investment opportunity is accompanied by a specific deadline. 

Increased control of funds

When you invest in an asset like real estate, it’s common to encounter regular transactions, such as ongoing rent or lease payments, maintenance expenses, etc. When you have a standard SDIRA, each transaction can engage the custodian, resulting in more paperwork and fees. 

On the other hand, an LLC grants you direct control over the flow of your funds. That means you can accept and write checks from your LLC debit account to pay for services. This includes rent checks or rehabilitation services required to maintain or enhance your property. 

Now that you understand the benefits of opening an SDIRA LLC, let’s look at how easy and practical it is to accomplish. 

How to Open a Self-Directed IRA LLC

1. Set Up a Self-Directed IRA

Before opening your LLC, you must set up your self-directed IRA. Opening a self-directed IRA is easy; all you have to do is select your custodian and decide how you will fund the account.   

Learn more about how to open a self-directed IRA.

2. Establish Your Special Purpose LLC

LLCs are established with your state by submitting what is commonly known as an article of organization or certificate of formation, though the exact name of the form may vary in your state. To find out state-specific requirements, including any naming guidelines and fees, visit the Department of State website for your state. 

3. Create an LLC Checking Account

You can set up an LLC checking account with the banking institution of your choice, though it’s wise to compare fee structures and account rules before you make your selection. 

Once you choose the financial institution holding your LLC checking account, you will need your articles of organization (or an equivalent document) and the employer identification number (EIN) associated with your LLC. 

4. Fund IRA Purchases with Your LLC

Once you set up your self-directed IRA, LLC, and LLC checking account, you can begin to use the LLC to make purchases. You can typically use a check, wire, or debit card associated with the account to fund purchases. Remember that income earned from your investment must flow back into your IRA and cannot be used for personal expenses. 

Prohibited Transactions and Disqualified Persons

Even though a self-directed LLC gives you extended control over your investment decisions and IRA assets, you must still complete due diligence and follow all IRS rules related to an IRA. Failure to do so can result in tax penalties.

Two of the most important rules to be aware of are prohibited transactions and disqualified persons. 

Prohibited transactions refer to any transaction that results in the improper use of your IRA funds or assets by you or a disqualified person. Prohibited transactions include:

  • Borrowing or taking a loan from your IRA. 
  • Selling property to your IRA.
  • Using your IRA as loan collateral 
  • Using IRA funds to purchase items or property for personal use
  • Investing in prohibited assets, such as life insurance or collectibles. 

Disqualified persons are typically people who are related to the IRA account holder or closely connected to the retirement plan. This includes:

  • Spouses
  • Ancestors (parents, grandparents)
  • Descendants (son, daughter, grandchildren, adopted child). 
  • IRA fiduciary
  • Any individual or entity that provides services to your account, such as a financial advisor or accountant
  • Any organization or entity that is 50% or more owned by a disqualified person listed above

Opening an SDIRA LLC is relatively straightforward and is just one of many ways to maximize the wealth-making potential of your SDIRA.

Be sure to conduct your due diligence and speak with a custodian who is well-versed in opening and operating an SDIRA LLC, like the team at Horizon Trust. 

Self-Directed IRA LLC FAQs

What Can I Invest in with an IRA LLC?

You can use your IRA LLC to invest in a wide range of assets, including real estate, tax liens, oil and mineral rights, venture capital, mortgage notes, private loans, cryptocurrency, crowdfunding ventures, precious metals, and other more traditional investment assets, like stocks and bonds.

What is Checkbook Control? 

Checkbook control allows IRA holders the ability to directly manage self-directed IRA funds through a linked IRA LLC. With checkbook control, you can make investments using IRA funds without relying on a third-party custodian to approve or oversee the transactions. This leads to faster transaction times, enhanced asset flexibility, and lower transaction fees. 

Can You Acquire a Non-Recourse Loan for an IRA LLC?

Yes, you can get a non-recourse loan for an IRA LLC investment. Non-recourse loans may be used if you want to purchase an investment property but need more funds in your retirement account to complete the purchase.

Are IRA LLCs allowed to Open a Credit Card?

No, an IRA LLC cannot open a credit card account. An IRA LLC can use a debit card linked to the LLC checking account to make purchases as long as they are aligned with IRS rules regarding IRA account transactions.