Single Member LLCs

The following investment structures have been identified as high risk with regards to Internal Revenue Code Section 4975, 408, 408A, and other applicable codes. New Direction IRA, Inc. does not give investment or legal advice with regards to the operation or creation of these investments, and any client undertaking the investment of their IRA in these structures shall acknowledge that they have a competent legal advisor who can counsel them on the regulations pertaining to their IRA investment in these investment structures.  New Direction IRA, Inc. is not responsible for the details of the entity operating agreement. New Direction IRA, Inc. signature is affixed at the instruction of the IRA holder and does not imply any review or certification of the documents or investment. An attorney opinion letter is required prior to funding this type of investment, as described below. For the purposes of this “High Risk Investment Acknowledgment”, the term “IRA” shall include HSA, Roth, Coverdell, 401(k), SEP, or SIMPLE accounts.

These investment structures are identified as follows:

  1. Single member LLC or corporation where the IRA owns/is 100% member/shareholder of the entity.
  2. Multiple member LLC or corporation where the aggregate ownership of the entity is composed, 50% or more, of IRA accounts owned by disqualified persons, and the IRA holder or other disqualified person acts as the manager for this entity.
  3. Multiple member LLC or corporation where aggregate ownership of the entity is composed, 50% or more, of IRA accounts owned by disqualified persons and/or disqualified persons’ investment of non-IRA funds, and the IRA holder or other disqualified person acts as the manager for this entity.
  4. In addition to 1 through 3 above, the term “High Risk Investment” also includes entities where the controlling interest is held by a disqualified person or persons. Such controlling interest shall be defined as the aggregate of all disqualified persons participating in the entity.

There is a big temptation in having your IRA funds in a checking account that you control, and for this reason the IRS may look at these investments more closely.

Important Things to Remember:

  • 100% of the funds are for the use of the IRA and its assets.
  • There can be absolutely no “self-dealing” with regards to the assets purchased or services provided to the asset.
  • Annual contributions to the IRA must still go through the self-directed IRA Administrator.
  • Subsequent to the LLC naming the IRA holder as manager, the LLC is a prohibited entity, and, as such, the IRA can not provide additional funds to the LLC.
  • The LLC must be able to conduct all its business within the limitations of the cash available within the account without involving disqualified persons or your personal funds.

Frequently Asked Questions:

Q: Who is the manager and who is the member of the LLC in my IRA?
A:You are the manager of the LLC which means you write the check and the IRA is the member which means the IRA owns the LLC.

Q: How do I know if an LLC is needed for the investment I would like to make?
A: The best way to know if an LLC is the right fit for your IRA would be to contact our office at llc@ndira.com or 877-742-1270.

Q: What are my responsibilities if my IRA is invested in an LLC?
A: Some of the responsibilities of managing an LLC within your IRA are filing tax returns for the entity, filing annual reports, and paying reporting fees to the Secretary of State. Filing 1099s or other IRS reports may also be necessary. Remember to keep in mind that the requirements for an LLC owned by your IRA are the same as any other business entity.

Q: An LLC owned by your IRA sounds like a lot of work. Is there another option to make my investment?
A: Yes, your IRA can make an investment into an asset directly (i.e. real estate) without involving an LLC.

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For more information, call us toll-free at 1-877-742-1270.