IRA-Owned LLC Structures: Rules, Risks, and Use Cases

 

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IRA-Owned LLC Structures: Rules, Risks, and Use Cases

📌 Table of Contents

What Is an IRA-Owned LLC?

An IRA-owned LLC, also known as a checkbook IRA, is a structure that allows you to create a limited liability company owned entirely by your self-directed IRA.

It gives you direct checkbook control to make investments without going through a custodian for every transaction.

This setup is popular among investors who want greater flexibility and control—especially for real estate and alternative asset investing.

How It Works

You first open a self-directed IRA with a custodian that allows LLC investing.

Then, an LLC is formed with the IRA listed as the sole member, and you (the IRA holder) act as the LLC manager.

The IRA funds are transferred to the LLC’s bank account, allowing the manager to execute investments directly.

IRS Rules and Prohibited Transactions

The IRS prohibits certain transactions, including self-dealing, personal benefit, and dealings with disqualified persons (such as your spouse, children, or parents).

Examples of prohibited actions include living in an IRA-owned property, paying yourself a salary, or hiring relatives to perform services.

Violations can trigger full IRA disqualification, leading to taxes and penalties on the entire account.

Risks and Compliance Concerns

While the structure offers autonomy, it increases your responsibility for compliance.

You must maintain proper recordkeeping, avoid co-mingling personal funds, and follow IRS reporting rules like IRS Form 5498 and 990-T if UBIT applies.

Legal gray areas and potential IRS audits mean it's critical to work with experienced professionals.

Popular Use Cases

Real Estate Investment: Purchase rental properties, undeveloped land, or fix-and-flip properties.

Private Lending: Issue loans to third parties secured by real estate or assets (not to disqualified persons).

Private Equity: Invest in startups, hedge funds, or private companies not accessible through traditional IRAs.

Crypto and Alternatives: Buy cryptocurrency, precious metals, or tax lien certificates directly through the LLC.

This flexibility appeals to sophisticated investors seeking portfolio diversification.

Conclusion

IRA-owned LLCs offer unmatched investment flexibility, but they come with serious legal and tax responsibilities.

Before diving in, understand the rules, risks, and reporting obligations that apply to you.

Consult with a tax attorney or custodian who specializes in self-directed IRAs to make sure your structure is fully compliant.

🔗 Related Resources

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Keywords: IRA-owned LLC, checkbook IRA, self-directed IRA rules, prohibited transactions, real estate IRA investing