August 9, 2022

Gain Control of Your Retirement Savings with an IRA LLC

Overhead view of business professional holding a tablet that says ‘LLC - Limited Liability Company’

Key Points 

  • Active investments that involve a high volume and frequency of transactions are best suited in an IRA LLC.

  • An IRA LLC provides accountholders superior liability protection and the ability to invest in almost any asset in real-time without transaction fees.

  • The IRA LLC checking account gives the Self Directed IRA LLC accountholder checkbook control.

As a Self Directed IRA accountholder, you are likely aware of its benefits. You have the power to diversify your portfolio with assets that you believe in and provide a more reliable revenue stream. However, depending on your asset choice, you may want to consider how an IRA LLC can provide even greater investment freedom and flexibility. 

Let’s explore what an IRA LLC is, how to set one up, what investments you can make, and if it makes sense for your retirement strategy. 

What is an IRA LLC?

Cartoon illustration of two business professionals and a large lightbulb that says “Limited Liability Company”.

An IRA LLC (also known as Self Directed IRA LLC, Self Directed IRA with Checkbook Control, and Checkbook IRA) is an IRS-compliant structure that provides real-time access to your IRA funds. Just like a Self Directed IRA, with an IRA LLC you have the power to diversify your portfolio within a tax-advantaged account. However, the IRA LLC adds the benefits of eliminating custodian paperwork for each transaction and superior liability protection. The IRA LLC must be set up properly to achieve these advantages.

Madison Trust works with our sister company Broad Financial to bring the entity creation, support, and custody of your Self Directed IRA LLC together for a seamless experience. You can have peace of mind knowing that your IRA LLC is set up according to IRS standards, allowing you to focus on investing in the assets of your choice! 

Who Owns the LLC in a Self Directed IRA?

The Self Directed IRA (not the accountholder) owns 100% of the LLC (Limited Liability Company). The Self Directed IRA accountholder typically acts as the non-compensated manager of the LLC.

Why Can an IRA LLC Invest in Real-Time?

What gives the IRA LLC accountholder the ability to invest in real-time is a designated IRA LLC checking account. If the Self Directed IRA accountholder is the manager of the LLC, then they can manage the checking account. This is known as Checkbook Control. This gives you the power to write checks on behalf of the Self Directed IRA without having to go through a custodian for every transaction.

What Investments Can I Make with an IRA LLC?

An IRA LLC gives you the freedom to invest in almost any asset and is ideal for investments that involve many transactions. For example, a real estate rental property investment involves many transactions such as purchasing the property, receiving rental income, and paying for repairs. An IRA LLC is beneficial for this type of investment, as it allows transactions to be completed swiftly and easily. 

Here are some examples of investments you can make with an IRA LLC.

What Can You Invest in with an IRA LLC Infographic – real estate (rental properties, raw land, residential or commercial real estate, etc.), deeds, private loans, tax liens, cryptocurrencies, private businesses, limited liability companies and partnerships, private placements, precious metals, and more!

What are the Benefits of an IRA LLC?

Although you can enjoy the benefits of investing in alternative assets with a standard Self Directed IRA, an IRA LLC may be better depending on your asset choice and investment strategy. 

You may want to establish an IRA LLC if you are looking to:

Business individual and a clock icon showing that you can make investments on your time.

Invest on Your Time

With an IRA LLC, you’re able to bypass the custodian’s review of paperwork and perform transactions on your time.

Invest on Your Time - Example

For example, if you choose to invest in cryptocurrency, you will be able to act timely based on the market.  

Two arrow icons pointing up and a growing flower to show growth of retirement investments.

Invest in Active Assets with Many Transactions

By having total access to your Self Directed IRA funds through a dedicated IRA LLC checking account, you can make as many transactions as you’d like in real-time. To invest, simply send a check or wire from your IRA LLC checking account.

Invest in Active Assets with Many Transactions - Example

For example, an IRA LLC accountholder can invest in a real estate rental property, sign contracts, receive rental income, pay repair costs, and perform all transactions through their IRA LLC checking account.

Businessman icon with document and dollar sign.

Reduce Custodian involvement and fees

With the IRA LLC, there are no transaction fees and no custodian paperwork to complete per transaction. This gives you more time and more money in your pocket to invest!

Reduce Custodian Involvement and Fees - Example

For example, assume you would like to purchase real estate at a trustee’s sale. With a standard Self Directed IRA, you (the IRA owner) would be unable to do so in a timely manner. This is because you would have to identify the property at auction, submit documents to the IRA custodian for approval, and wait for approval of the purchase before the IRA funds are invested. However, with an IRA LLC you can invest in the asset immediately, without having to direct the custodian to perform the transaction.

House icon with security lock inside to signify superior liability protection of the IRA, IRA owner, and IRA custodian.

Achieve superior liability protection

The LLC provides asset protection that shields the IRA, IRA owner, and IRA custodian from any liabilities and claims that may arise from the IRA LLC’s investments. A standard Self Directed IRA does not have this additional layer of liability protection.

Achieve Superior Liability Protection - Example

For example, assume there was a slip-and-fall incident or other liability that arises in your IRA LLC-owned rental property. In this case, the injured party is only able to sue the IRA LLC, leaving the IRA, IRA owner, and IRA custodian protected.

How Do I Set Up an IRA LLC?

1. Open and fund a self directed ira account

All Self Directed IRA accounts, including the IRA LLC, must be held by a custodian, such as a bank or trust company like Madison Trust Company.  

Once the account is established, transfer or rollover funds from a previous retirement account or complete an initial contribution.

2. establish an llc for your ira

It is recommended to have an ERISA attorney or IRA LLC facilitator prepare the LLC paperwork, to ensure it is IRS-compliant. Madison Trust’s sister company, Broad Financial, is an IRA LLC facilitator that can establish your LLC.

A meeting with a couple and a financial advisor where the couple is signing a IRA LLC paperwork.

Explore More: Broad Financial's Role in IRA LLC Creation:

Broad Financial will complete the following:

  • Register a Limited Liability Company with the Secretary of State’s office (generally in the state where the IRA property is located) and file Articles of Organization. 

Note: there are different rules and regulations regarding establishing LLCs in different states. Please review the rules for establishing an LLC in your state.  

  • Prepare a specialized Operating Agreement with provision related to IRS restrictions as outlined in IRC Sections 408 and 4975 (such as prohibited transactions, disqualified persons, undue compensation, etc.). The LLC member is titled “Madison Trust Company Custodian FBO [Your Name] [Madison account #]”.  
  • Obtain an Employer Identification Number (EIN) for the LLC from the IRS. The EIN is associated with your IRA, alerting the IRS that the LLC is a tax-advantaged account. 
  • Provide you with an IRA LLC handbook. The easy-to-use guide outlines what you can and cannot do within an IRA LLC.

3. Open an IRA LLC Checking Account

The next step is to take your IRA LLC paperwork to the bank of your choice and open a business checking account. This is the part of the process that upgrades your IRA LLC to the power of checkbook control! 

Then, instruct the Self Directed IRA custodian, Madison Trust Company, to send funds to the IRA LLC checking account. This is the only transaction that you must direct the IRA custodian to make until you take a withdrawal or distribution.

4. Invest with the IRA LLC

Investor typing on laptop with icons of a location, notepad, house, dollar sign, increasing investment graph, and an account on the forefront.

This is the most exciting step, as you can now start investing with the power of checkbook control instantly! As the non-compensated manager of the IRA LLC, you can use the IRA LLC checkbook to place all transactions. You have the freedom to purchase investments in real-time, pay bills, and deposit income back into the checking account. Start growing your investments in a tax-advantaged retirement account today!

Let's Dig into the Details: IRA LLC Things To Keep in Mind

Do Not Commingle IRA Funds with Personal Funds

  • All investment income received and expenses paid must be through the IRA LLC checking account. For example, any rental property taxes, insurance, or repair costs must be paid with IRA funds.
  • Contributions to the IRA LLC must be made through Madison Trust, not made directly into the IRA LLC.
  • It is recommended to consult with a legal attorney familiar with LLC state laws and IRA rules (such as prohibited transactions) to help avoid any consequences.

Be Aware of Prohibited Transactions

  • A prohibited transaction is an improper transaction between an IRA and a disqualified person. A good rule of thumb is that an IRA may transact with third parties, but may not transact with close family members or closely held entities.
  • Make sure your IRA is not transacting with or lending money to disqualified persons and not receiving personal benefit from the IRA investments.
    • For example, you nor any disqualified person cannot stay in or make any repairs on your IRA-owned vacation rental property.

Title Everything Properly

  • Ensure that the IRA LLC bank account is in the name of your IRA LLC, not your personal name. Also, use the LLC employer identification number when opening the checkbook IRA bank account.
  • Title all investments in the name of the IRA LLC, not your personal name.
    • For example, if John Day wants to purchase a rental property with his LLC named 123 Beach Drive LLC, the title would be in the name of the LLC.
    • If John Day was not using the IRA LLC structure (rather he is using the standard Self Directed IRA structure), the property would be titled “Madison Trust Company FBO John Day and his (Madison Trust account number).

Process Distributions from the Self Directed IRA, not the IRA LLC

  • To take a distribution, the funds must be returned from the IRA LLC checking account to the Self Directed IRA account at the custodian. This is because the custodian must complete Form 1099-R reporting.

The IRA LLC Must Operate According to ERISA Law

  • A common question we are asked is “Can I set up an IRA LLC on my own?”. The short answer is yes; however, it must be set up according to IRS and ERISA laws to obtain the tax advantages.
  • Essentially, the Operating Agreement must state that the LLC will operate according to the rules and regulations of ERISA law.
  • By having Madison Trust’s sister company, Broad Financial, set up your IRA LLC, your mind can be at ease knowing that your account is set up correctly.

Conclusion: Let's Put It All Together

A standard Self Directed IRA is great for investments that do not have many transactions such as raw land, private stock, or promissory notes. However, if you are looking to invest in more active assets like a rental property or real estate rehab project, an IRA LLC may be more beneficial.

The IRA LLC strategy offers significant advantages, such as speed and convenience. With checkbook control, you have the ability to manage your Self Directed IRA funds in real-time with ease. Rather than directing your custodian to perform IRA transactions, you can simply write a check or send a wire to manage your assets. There are also no transaction fees. Today’s the day to supercharge your self-directed investing with an IRA LLC!

Woman smiling while typing on her laptop, making investments, and completing her finances.

Are you interested in investing with an IRA LLC?

Reach out to us to get a free consultation.


You've got questions? We've got answers.

Fill out our form below, and a Self-Directed IRA Specialist will answer all of your questions. 
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