Self-Directed Retirement Account LLCs
Looking for even more control over your retirement account? Consider a Self-Directed Retirement Account LLC owned by one or more of your retirement accounts, and controlled by you. Consider the advantages of an LLC owned by your retirement account, also known as IRA/LLCs or Self-Directed Retirement Account LLCs (SDRA LLCs).
Why have your Retirement Account own an LLC?
We are experienced in forming all types of LLC structures where a retirement account is an owner. Although these structures can be complex, an attorney at Ken Childs Law can walk you through the options available to you and ensure compliance with the rules and regulations involving prohibited transactions and any potential negative tax treatment.
Below is a list of several advantages for having your retirement account own an LLC that YOU control as an Officer or Manager.
1. Administrative Ease, also known as “Checkbook Control”. If you don’t have your retirement account own an LLC that you control, then you must work with the custodian of your retirement account for all transactions. This means, for example, if you need to pay for a repairman to go in and fix a sink on property owned by your retirement account, you have to coordinate with your custodian to have the custodian pay for the repair on the property. Not only is that a hassle to coordinate, but also custodians often charge a transaction fee for that type of service. On the other hand, if you had your retirement account own the LLC that owned the rental property then YOU, as the Manager or Officer of the LLC can write the check to pay the repairman directly without any involvement with the custodian. That is the ultimate freedom in self-directing your retirement account. You can sign purchase contracts as the Manager of the LLC and direct all of your investments without going through the custodian.
2. Asset Protection for the liabilities created by your Self-Directed Retirement Account. When your retirement account purchases a rental property, for example, it takes on the same liabilities of any other landlord. Meaning, anything that a landlord may get sued for (eg. Slip and fall, trip and fall, and other tenant disputes), your retirement account could also be liable. This exposes your entire retirement account to that type of liability if it were sued. Now, if you actually purchased that same rental property with an LLC owned by your retirement account, only the LLC will be sued and not your entire retirement account. Only the assets of that particular LLC will be at risk.
3. Asset Protection for You Personally. Consider the same situation as above, where the retirement account directly owns a rental property. You, as the individual directing the investment of that retirement account, can also be personally liable for unsafe conditions to property owned directly by your retirement account. You are not protected from liabilities caused by your retirement account under this situation, which means your personal assets (cash, personal residence, etc.) can be at risk. However, if an LLC (owned by your retirement account) owned that same rental property, then just like in the first situation, only the LLC and its assets (cash, other properties, etc.) are at risk in the law suit, and not you personally or any other assets of your retirement account that are not inside that same LLC.
These advantages make having an LLC of this type almost an essential when it comes to self-directed retirement accounts. The process can be fairly painless if you involve an expert attorney in this area of law as there are several pitfalls that a retirement account owner can fall into if they aren’t careful. Additionally, most custodians require that retirement account owners have their LLCs carefully drafted and structured by an experienced attorney and also that the attorney provide ongoing legal advice.
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