If done properly, owning a limited liability company through your IRA can provide you with extra security and cut back on costs. LLC investments can put the checkbook into your hands, giving you complete control of your financial investments.

Trying to choose the best option for your retirement investing can be frustrating.

With so many types of retirement plans on the market, it can be overwhelming to decide which retirement account is right for you or your family.

In addition, if you fund your retirement through a workplace account, a bank trust, or an IRA custodian, there is always a third party who oversees your investing. While that structure may work for some people, there is a way for you to be the manager of your own retirement fund.

Depending on your investing knowledge, a self-directed limited liability company, also called an SDIRA LLC, can be very beneficial for IRA owners who want greater checkbook control. If you think this retirement investing style could benefit you, read below to discover more about SDIRA LLCs and how they can help you prepare for retirement.

What is an SDIRA LLC?

An SDIRA LLC is a distinct legal entity owned by your IRA, in which you are the sole manager.

Unlike traditional IRAs, a self-directed IRA allows you to invest in alternative assets like gold or metal. In addition, you can use your self-directed IRA to loan money or buy property using an LLC.

In essence, an SDIRA LLC allows you to invest in anything not prohibited by the IRS using the funds in your retirement account without penalty.

SDIRA LLC owners, also called “members,” have complete checkbook control, meaning you have the authority to sign over funds from the account. This type of account can be helpful, especially if you are in a situation in which you need immediate access to your retirement funds.

Hypothetically, let’s assume that you have an ample supply of money in your SDIRA LLC, and you find a piece of real estate in your town that you would like to buy as an investment property. The property has an asking price of $250,000. It’s not uncommon for sellers to agree to a lower asking price if a full-cash offer is made, meaning a $225,000 cash offer would probably land you the property.

If your money is in a traditional IRA, you wouldn’t be able to access the cash and purchase the property. However, if you’re the sole owner of an SDIRA LLC, you can access cash from your account without penalty.

When you invest in tax liens, earnings come from the interest applied to the lien

What is Checkbook Control?

Checkbook control is a term that refers to the maximum amount of control that you can have with a retirement plan. When you have checkbook control, no intermediary oversees your investments.

How Can an LLC Benefit You?

A self-directed IRA LLC gives you greater access to your retirement funds. For example, writing your own checks provides you with a greater level of checkbook control, allowing you to invest when and where you want.

Additionally, if your SDIRA owns multiple pieces of real estate, the cutdown on additional costs is also a major benefit. Rather than paying multiple transaction and check-writing fees, you are only charged for one. This cuts down on unnecessary costs, especially if you plan on further developing your real estate portfolio.

Finally, an SDIRA gives you more personal protection in the case of lawsuits or bankruptcy. If you were either to suffer from bankruptcy or had your assets frozen in a legal battle, you would still enjoy access to your SDIRA. This is a huge benefit to those who want to protect their assets down the road.

Single-Member LLCs

While a few types of LLCs are available, a single-member LLC makes the most sense for your IRA.

This is the most common type of LLC for small business owners and those who want to set up an SDIRA LLC. The low setup costs and simplistic legal structure make it a great choice. Under this type of LLC, you own the “business” and are solely responsible for using funds.

What to Avoid When Opening an LLC

The easiest pitfall to avoid when investing with your SDIRA LLC is taking part in prohibited transactions that can lead to unintended tax penalties or the disqualification of your account. There are also rules in place that prohibit compensation being paid to the account manager, which in an SDIRA LLC is you. The rule also applies to any “disqualified persons.” To resolve these disputes, you must state these matters clearly in the initial LLC agreement that you set up.

What Can I Invest in With My LLC Using an SDIRA?

While there are certain federal restrictions concerning what SDIRA LLC owners can invest in, there are plenty of options available to SDIRA owners. There are several self-directed IRA investment ideas, including:

  • Foreign or domestic real estate
  • Precious metals
  • Raw land
  • Peer-to-peer lending
  • Private businesses

Building Retirement Funds for the Future

You must perform due diligence when purchasing alternative investments with an IRA-owned LLC. If completed properly, owning a limited liability company through your IRA can provide you with extra security and reduce costs.

LLC investments can also put the checkbook back in your hands, giving you complete control of your retirement investments. With the future at your fingertips, you can build a solid nest egg for your retirement.