Checkbook LLCs enable savvy investors to bypass their custodians and take full control of their retirement decisions.
Available to Self-Directed IRAs and Solo 401(k)s, checkbook LLCs offer a strong layer of liability protection to any asset you own and are easy to set up using Horizon Trust.
In this webinar, Horizon Trust founder Greg Herlean and President and CFO Steve Little discuss the financial advantages of checkbook LLCs and answer all your questions.
If you don’t have time to watch the full video, we’ve provided some of the most commonly asked questions about checkbook LLCs below.
What are the costs required to set up an IRA LLC?
While prices vary, Horizon Trust has a program to help customers set up an LLC for anywhere between $1,000-$1,500. This price includes the annual state filing fee, which varies from state to state. Horizon Trust’s LLC program also includes a specialized operating agreement created by a third-party entity formation company that will help you set up all of the special provisions required by your LLC.
Can I be paid as a manager of my checkbook LLC?
No, neither you nor any direct-line beneficiaries can personally profit or be paid from the checkbook LLC.
Is there a maximum contribution available under an SDIRA?
All IRAs are subject to the same contribution limits. However, self-employed individuals qualify for a higher contribution limit if they open an LLC under a Solo 401(k).
See: Contribution Limits Chart.
Are marketing, legal, or admin fees allowable under an SDIRA LLC?
The best way to answer this question is to ask whether these fees benefit the asset directly. So, if you’re paying marketing fees to list and sell a property owned by your SDIRA, you will be allowed to pay down fees using your SDIRA as long as it benefits the asset. The same goes for other administrative fees, such as legal fees.
What happens when you sell a property inside a retirement account LLC? Can you collect any distributions?
All proceeds go directly to the LLC. However, to collect distributions, you must send the money from your LLC to your custodian and then submit a distribution request form for the funds. Unless you are over 59½, that distribution will be penalized.
Why can I not move money from my 401(k) to a Self-Directed IRA?
Depending on the plan documents of your 401(k) sponsoring company, there may be provisions prohibiting employees from taking out employer money and rolling it over to a different account or taking their own money out before a certain amount of time has passed.
Are IRA LLC renewal fees tax deductible?
Under a Roth structure, all fees and costs are not tax deductible.
What are other investments besides property that I can buy with an IRA LLC?
Promissory notes, Bitcoin, gold, and all other alternative assets available under an SDIRA are also available for investment with a checkbook LLC.
Can I use multiple LLCs to own multiple properties?
More often than not, having a single master or series LLC (only available in certain states) to hold all of your assets will provide enough liability protection to cover most of your assets. However, discussing this with a financial analyst or your board of directors, including legal and insurance experts, will determine the right path for your portfolio.
Can I take a personal loan from my checkbook LLC?
No, this option is not available to IRA holders. Furthermore, to take out a loan from a checkbook LLC 401(k), the funds must be transferred back to your custodian before they can be taken out for a personal loan. Personal loans from a 401(k) can only be transferred to a personal checking account.
Can I purchase a whole life insurance policy using a checkbook LLC?
No. Life insurance is prohibited in any IRA account, including self-directed IRAs.
Can you purchase properties outside of the country using an SDIRA LLC?
It is possible to purchase property outside of the United States using a self-directed IRA and checkbook LLC. However, you will need to read up on local laws regarding ownership by a US-based title company and LLC in other countries and familiarize yourself with taxes and fees.
What paperwork is required by the IRS for your checkbook LLC?
Generally, single-member LLCs don’t have to file any paperwork, and your IRA custodian will prepare Form 5498, which sets an approximate valuation of your company and its assets. However, if you have another entity and owe UBTI or UDFI taxes, you will be responsible for filing IRS Form 990-T. Furthermore, if you have a 401(k) with a market value of $250K or more, then you are required to sign IRS Form 5500. Horizon Trust has a legal entity that prepares these annually for a fee.
Learn More: Reporting on your Self-Directed IRA.
Can I sell a rental property I own to my new SDIRA LLC?
No, self-directed IRAs prohibit you from purchasing or selling property or assets to any prohibited persons, including yourself.
See List of Prohibited Transactions.
How can you limit the risk of lawsuits against the rental properties in an LLC?
Adding comprehensive property insurance is one way to limit your liability. Setting up different LLCs for different groups of properties can also shield some of your properties from liability against another property that may be bundled in the same LLC.
Are Checkbook LLCs at a higher risk of being audited by the IRS?
Generally, your risk of being audited depends on your adherence to the laws and regulations set forth by the IRS. Horizon Trust ensures that the structure of your Checkbook, LLC meets the regulatory compliance requirements at the time of formation, but as the manager, you are primarily responsible for the adherence to all the laws that pertain to self-directed investing.
Can a checkbook LLC holder be a part-owner of a business?
Yes, your Checkbook LLC enables you to partner with other business owners as long as they are not disqualified persons. With that said, all partners and beneficiaries will be subject to the same laws surrounding SDIRA LLCs as the LLC itself.
Do I have to have an LLC in the state I want to buy property in?
Yes, but different states have different requirements for purchasing property out-of-state. For example, some states may require you to register the LLC as a foreign registration entity, and you will be subject to the taxes and regulations of that state.
Can you set up an LLC using an Inherited IRA?
Yes, inherited IRAs are just like any other IRA. However, there are RMDs and a time limit of 10 years–since the 2020 changes–you need to be aware of.
