Guidelines for Managing an IRA LLC: Do’s, Don’ts and FAQs

A “Self-Directed” Individual Retirement Account (IRA) is a term used to describe an account that gives the holder the freedom to select their own investments, including real estate and various other assets. Technically, any IRA can be self-directed. By adhering to the guidelines below, you can manage your self-directed IRA effectively and invest in ways that align with your retirement objectives.

Keep in mind that your retirement account is separate from you personally. You cannot benefit directly from your IRA’s investments until you withdraw assets or funds as a distribution.

Do’s for IRA LLCs:

1. Establish the IRA LLC/Checkbook IRA Before Investing: Set up the legal structure of your IRA LLC before negotiating any investment deals.
2. Maintain State Registration: Ensure your LLC is registered and complies with regulations in its home state.
3. Provide Required Valuations: Submit an annual valuation to your IRA custodian if required by law.
4. File Necessary Tax Returns: If your IRA LLC has multiple members, file an annual partnership tax return using Form 1065.
5. Report UBTI: Any Unrelated Business Taxable Income (UBTI), like income from a non-recourse loan on a property owned by the IRA LLC, must be reported.
6. Use LLC Funds for Expenses: All expenses related to the IRA LLC should be paid from its funds.
7. Seek Professional Advice: Consult with a CPA or attorney to avoid inadvertently incurring taxes through business activities or leveraged investments (UBTI).

Don’ts for IRA LLCs:

1. Avoid Transactions with Disqualified Parties: Do not engage in transactions with or for disqualified parties—including yourself, your spouse, direct ancestors/descendants, or entities where a disqualified party has control.
2. Refrain from Certain Investments: The IRA LLC should not invest in collectibles, life insurance contracts, or sub-chapter “S” corporation stock.
3. No Sweat Equity Contributions: Neither you nor any disqualified party should contribute labor to the IRA LLC.
4. Avoid Personal Contracts: Do not sign contracts in your personal name or on behalf of a disqualified party.
5. No Personal Guarantees: Avoid signing personal guarantees or using personal credit for IRA LLC transactions.
6. Properly Handle Distributions/Contributions: Any distributions or contributions must go through the custodian, not directly from/to the IRA LLC.
7. Avoid Personal Insurance on Properties: Properties owned by the retirement account must have their own insurance policies, not personal ones.

Frequently Asked Questions:

Can I work on a property owned by my Retirement Account?
No. While you can manage a property with a Checkbook IRA, neither you nor disqualified parties can physically perform work on it.

Can I co-purchase a property with my IRA?
Yes, you can purchase alongside your IRA or a disqualified party, as long as it doesn’t involve direct transactions between you and your IRA for personal benefit.

Can I deduct expenses when buying/selling property through my IRA?
No. You are not the owner; the Trust Company holds the property via the IRA LLC.

Is it possible for an IRA to obtain a mortgage?
Yes, but only non-recourse loans are permitted.

Can I buy a vehicle for personal use with my IRA?
No, personal benefits from IRA investments are prohibited.

Managing an IRA LLC requires adhering to specific guidelines to maximize your retirement savings and avoid costly errors. By following these do’s and don’ts and consulting with financial or legal experts when needed, you can effectively utilize the flexibility and diversification a self-directed IRA offers. Careful planning is essential in achieving the financial security you desire for your future.

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David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 800-475-1031.