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Can You Utilize a Single-Member LLC for IRA Investments?

Estimated reading time: 2 minutes, 34 seconds

We often get questions from prospective clients about how investing with a single-member limited liability company (LLC) is different from other forms of investing. For some account holders, utilizing an LLC for retirement investing is the only self-direction they’re aware of. Some clients are even told by others that a Self-Directed IRA needs an LLC to invest in alternatives.

Single-Member LLCWhile certainly not required for self-direction and alternative asset investing, you can utilize a single-member LLC for IRA investments.

First, a retirement account does not need an LLC to purchase alternative assets or be self-directed. However, a single-member LLC can be held in IRAs and other retirement accounts, just like other pass-through entities or private equity investments. What sets it apart, however, is that the LLC is used as an investment vehicle in which other investments may be made.

Why do some choose to invest using a single-member LLC? Some investors want closer control over their funds and investments, and an LLC would provide that. But with the added control comes additional responsibility.

A commonly misunderstood point is the LLC is an investment held in the retirement account. The LLC is owned by the IRA—not the other way around. Any investments owned by the LLC are indirectly held by the retirement account.

Once the retirement account purchases the LLC, most of the responsibility shifts to the account holder and/or manager of the LLC. All purchases, sales, and asset management proceed without the IRA custodian’s involvement. So while this might cut down on fees and may speed up some processes, there is a significant amount of added responsibility.

The IRA holder must, therefore, be even more diligent about the investment.

He or she and the LLC manager must understand all related IRS rules and regulations. This includes prohibited transaction rules and certain tax situations, particularly uninvested business income tax (UBIT). And the responsibility extends to proper accounting and recordkeeping. Unlike with a direct investment, the IRA custodian won’t have access to information regarding the underlying assets owned by the LLC.

Another thing to keep in mind is that the same rules apply to direct investments as indirect ones. For instance, the depository rules for metals apply whether they are held directly in an IRA or indirectly inside an IRA-owned single-member LLC.

Also, even though an IRA-owned single-member LLC can be used as its own investment vehicle, IRA distribution rules still apply. Click here for more information on taking a required minimum distribution (RMD) from your IRA-owned single-member LLC.

So, perhaps the freedom and flexibility are worth the extra responsibility to you. Perhaps it isn’t. Either way, whether you want to invest in assets directly using a Self-Directed IRA or indirectly via a single-member LLC structure, Kingdom Trust is here to help facilitate your investment request.

Note that Kingdom Trust does not set up single-member LLCs. The account holder is responsible for the creation of the LLC and its documentation and for finding an LLC manager.

To learn more about this asset class, visit our Single-Member LLC page. Also be sure to understand our requirements for investing in single-member LLCs.

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