How to Set Up Your Own Self-Directed IRA LLC

A self-directed IRA (SDIRA) is a type of retirement account that allows you to hold a variety of investments that are typically not allowed in regular IRAs. The account must still be administered by a custodian or trustee, but as the account holder, you can manage the account.

Basics of Self-Directed IRAs

Self-directed IRAs are an excellent choice for solo entrepreneurs who do not have access to a traditional 401(k) or IRA through an employer. Some people choose to open a self-directed IRA as a supplement to an employer-sponsored plan. This type of IRA allows you to have different types of investments, such as:

  • Real estate
  • Promissory notes
  • Undeveloped land
  • Tax lien certificates
  • Precious metals
  • Water rights
  • Cryptocurrency
  • LLC membership interest
  • Livestock

Setting Up a Self-Directed IRA

The steps to setting up a self-directed IRA are easy, but you must be willing to assume a considerable amount of risk and do thorough research on any investment instruments that you wish to use. Here are the steps:

  1. Find a custodian or trustee who is willing to offer a self-directed IRA.
  2. Select the set of investments that you wish to make.

  3. Find a broker to purchase the investment.

  4. Ask the custodian to carry out the transaction.

These steps make it sound easy, but there is a little bit more to it than that. For instance, you will have to understand the types of tax filings you will need to do and the rules for self-directed IRAs. You also do not have the advice of experts, and you will need to make sure to do due diligence on all the investments that you choose.

Setting Up an IRA LLC

Setting up an IRA LLC is one method that investors use to invest in real estate and other alternative investments. LLC stands for “limited liability company.” This legal structure limits the financial liability of the members. One of the advantages of an LLC is that it is taxed at an individual rate rather than at a higher corporate rate.

You can use an LLC to open both a traditional or Roth IRA. If you are not familiar with an IRA LLC, it might be a good idea to consult with an attorney who specializes in this type of entity.

Self-Directed 401(k) Providers

Banks and brokerage firms are the traditional IRA providers, but these institutions only allow you to invest in mutual funds, stocks, bonds and other traditional investment instruments. You must explore alternative self-directed 401(k) providers or IRA custodians if you want to take advantage of investments other than these.

Although self-directed 401(k) providers and IRA custodians allow you to hold investments that traditional providers do not, the IRS still has certain types of transactions that are prohibited. One example of this involves the transfer of property involving a fiduciary or service provider of the IRA. There are also prohibitions against transactions by certain family members or trusts related to the self-directed IRA administrator.

A self-directed IRA allows you to use investment instruments that traditional IRA providers would not allow. It also shifts the responsibility for the success or failure of your plan to you. You must be willing to take on the financial risk and do your own research. You will also be responsible for learning and following the rules of the IRS and other authorities. You can find a complete list of the IRA requirements and forms on the IRS website.