May 22, 2024

How Do Multi-Member IRA LLCs Work?

Written By: Daniel Gleich

Key Points 

  • A Multi-Member LLC is a limited liability company (LLC) with multiple members.
  • You can open a Multi-Member IRA LLC and save for retirement with a Self-Directed IRA LLC.
  • If a Multi-Member IRA LLC piques your interest, Madison Trust's in-house experts can help you get started on your multi-member investing journey.
multi-member LLC investors discussing using their Self-Directed IRA LLCs

Are you looking for a unique way to maximize your retirement savings? If so, a Multi-Member IRA LLC should be on your radar. Through a Multi-Member IRA LLC, you can enjoy multi-member investing and take your retirement goals to new heights. Let’s dive deeper into Multi-Member IRA LLCs and how they work.

What is a Multi-Member LLC?

Purple notecard that says “LLC Limited Liability Company” on a desk with colored pencils, a notebook, and paper clips.

First, we'll define what a Multi-Member LLC is. A Multi-Member LLC is a limited liability company (LLC) with more than one member or owner. It’s widely seen among businesses with multiple owners and intended to provide personal asset protection. 

With a Multi-Member IRA LLC, you may leverage the expertise of others and invest in a variety of alternative assets, even if you don’t have experience or familiarity with them. It’s important to note that multi-member investing is only an option with just an LLC as a trust cannot be a multi-member entity. 

What is a Self-Directed IRA?

A Self-Directed IRA is a type of IRA that allows you to invest beyond Wall Street products in alternative assets. Some popular alternative assets include real estate, precious metals, private placements, and promissory notes. If you're interested, you and another SDIRA account holder or even someone who would prefer to invest in their personal funds can co-invest in an asset using a Multi-Member LLC. We call this a Multi-Member IRA LLC.

Example of Using a Multi-Member IRA LLC

Let’s say a husband and wife want to invest in the same piece of real estate by using both of their Self-Directed IRAs. They decide to form a Multi-Member LLC so they can pool together both their knowledge and IRA funds to purchase it. Since they’re both owners of the Multi-Member LLC through their respective SDIRAs, they enjoy shared ownership, decision-making, and profits.

Benefits of Multi-Member LLCs

The most noteworthy benefits of Multi-Member LLCs include:

Benefits of Multi-Member LLCs Infographic: The most noteworthy benefits of Multi-Member LLCs include: (1) Opens the Doors to Multiple Owner Investing - This structure allows multiple SDIRA owners to be able invest in the same alternative investment. (2)
Allows Spouses to Co-Invest - Spouses can co-invest through this option. Since it is a co-investment, it's not seen as a prohibited transaction. (3) Access to Diverse Skills and Expertise - Since a Multi-Member IRA LLC includes multiple members, you can take advantage of a diverse set of expertise and skills. Each member will bring their own unique experience to the table. 
(4) Chance to Invest in More Lucrative Assets - As a Multi-Member LLC, you’ll have the opportunity to pool more capital by co-investing. This can allow you to invest in larger, more lucrative assets.

Prohibited Transactions & Multi-Member IRA LLCs

Your Multi-Member IRA LLC must comply with prohibited transaction rules. Put simply, a prohibited transaction is a type of transaction that occurs between an IRA and a disqualified person. 

They do not limit what a person can invest in but rather who an IRA can transact with. In general, an IRA may transact with third parties but may not transact with close family members or closely held entities. Here are the three main categories of prohibited transactions:

  • Per Se Prohibited Transactions: Per se prohibited transactions occur when an IRA transacts with a disqualified person. According to the IRS, a transaction is a sale, lease, lending of money or extension of credit, or the furnishing of goods and services. 
  • Extension of Credit Prohibited Transactions: Extension of credit prohibited transactions refer to any transaction in which an IRA owner borrows money from their IRA or uses their IRA as collateral for a loan. Any attempt to use an IRA as a personal bank account can result in tax penalties and potentially disqualify the IRA from tax-exempt status.
  • Self-Dealing Prohibited Transactions: Self-dealing prohibited transactions take place when a disqualified person receives a personal benefit from their IRA investments. A Self-dealing prohibited transaction is commonly referred to as a “conflict of interest” prohibited transaction.

Other Important Considerations with Multi-Member IRA LLCs

businessman researching important considerations of investing with a mulit-member LLC

There are a few more considerations to be mindful of if you choose to invest with a Multi-Member IRA LLC. Firstly, you must file a Schedule K-1 (also known as Form 1065) partnership tax return annually. This reports each member’s shares of the LLC's income.

In addition, the ownership percentages that were established when your Multi-Member IRA LLC was formed cannot be changed at any point. Any profits generated by the LLC's investments will be allocated to each member's IRA according to their pre-determined ownership stake.

Going back to our husband and wife example mentioned above, let’s say the husband's SDIRA holds 60% ownership and his wife's SDIRA holds 40%. In this case, 60% of any profits generated from their shared real estate investment would be allocated to the husband's IRA and 40% would be allocated to the wife's IRA.

Consider Saving for Retirement with a Multi-Member IRA LLC

If you’re interested in opening a Multi-Member IRA LLC so you can co-invest in alternative assets or would like more information, schedule a discovery call with Madison Trust. We look forward to hearing from you!

Disclaimer: All of the information contained on our website is a general discussion for informational purposes only. Madison Trust Company does not provide legal, tax or investment advice. Nothing of the foregoing, or of any other written, electronic, or oral statement or communication by Madison Trust Company or its representatives, is intended to be, or may be relayed as, legal, tax, investment advice, statements, opinions, or predictions. Prior to making any investment decisions, please consult with the appropriate legal, tax, and investment professionals for advice.

Got Questions?

Speak with a Self-Directed IRA Specialist.
Blog Pages Right Side Contact Form (#11)

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. 
All Pages Bottom Contact Form
Corporate Headquarters:
Madison Trust Company
401 East 8th Street • Suite 200
Sioux Falls, SD 57103
Mailing Address:
Madison Administration Company
One Paragon Drive • Suite 275
Montvale, NJ 07645
Monday - Thursday: 9:00AM - 6:00PM EST
Friday: 10:00AM - 4:00PM EST
Saturday/Sunday: Closed
(800) 721-4900
[email protected]
F: 845-947-1212