The IRA Owned LLC, a Great Tool for Investing
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Finance > Retirement Planning
Mar 1, 2007
Jessica McGlothlin
The IRA Owned LLC, a Great Tool for Investing
?So many investors are tired of watching their retirement accounts dwindle away from the lackluster performance of the stock market, while the value of their home and surrounding areas increase in the double digits,? said Marco Caporale, President and CEO of Independent Executive Management, LLC.
Although using your retirement account to purchase real estate does offer the potential for two to three times the annual appreciation of traditional stocks, it does come with a lot of regulations and severe penalties, if not correctly applied. That is why the right account has to be set up, the rules have to be followed and a good custodian can help. It is not difficult and it can be done and many are doing it and making great money for the future.
If you read this far you are thinking, "I have heard of this before and all I have to do is open a self-directed IRA." However, to truly set your IRA free, (what many call checkbook control IRA), a couple of steps have to be taken that will give you total control of your IRA funds and profound asset protection. Yes, your IRA's, other retirement accounts, and other investments are not protected from law suits and you can loose your nest egg.
Let me start by giving you some background information. First of all, most custodians, even true self directed custodians, require massive amounts of paperwork and numerous hoops to jump through in order for you to invest your IRA money in an "alternative" investment. This costs you time and money (custodian fees). To more effectively use your IRA, your IRA will instead place all of its assets into a limited liability company (LLC). Therefore, there is only one asset to be declared by the custodian to the IRS and this translates to fewer fees to you. Notice I did not say that your custodian manages your IRA. Then who manages the IRA? well, you of course.
Why an LLC? The LLC gives great asset protection and tremendous tax advantages. The LLC enjoys the asset protection of a corporation while it can be taxed as a partnership. Partnership taxation is great because the LLC itself will not pay taxes. Instead, the owner of the LLC pays taxes as if they earned the income. Who is the owner of the LLC? Your IRA is the owner of the LLC(a tax- exempt entity). Therefore, you can maximized your investment and pay no taxes, what a deal.
What are the "alternative investments" mentioned above? They are too multiple to mention here but I will try:
real estate, other LLC's, franchises, unsecured loans, corporations, mortgage notes, commodities and futures, joint ventures, tax liens and tax deeds, currency exchange, times shares, limited partnerships, timberland investment, real estatle options, commercial paper, hunt lease investments, stocks, bonds, mutual funds, annuities, ect.
Is the concept of an IRA owned LLC legal? Yes, and the case Swanson VS. The Commissioner in 1996 cleared up any doubts that anybody had about this issue. In this case the court rejected the IRS position that the business structure constituted a prohibited transaction. The IRS was so wrong that the judge had the IRS refund legal fees to MR. Swanson.
How can you create this magnificent business structure to increase money for your retirement years? Here are the simple steps:
1. Open a self-directed IRA account. 2. Transfer your IRA assets to the new, self-directed IRA account. 3. Establish a LLC in the state of your desire. 4. Apply for your LLC's employer's identification number (EIN). 5. Set up a brokerage account or bank account for your LLC. 6. When you are ready to invest instruct the custodian to place the IRA assets into the bank account or brokerage account of the LLC. 6. Start checkbook investing.
Finally, you can move into the sef-directed IRA owned LLC other retirement plans, 401ks, 403B and have other investors joint in with you. Good luck and happy investing.
Although using your retirement account to purchase real estate does offer the potential for two to three times the annual appreciation of traditional stocks, it does come with a lot of regulations and severe penalties, if not correctly applied. That is why the right account has to be set up, the rules have to be followed and a good custodian can help. It is not difficult and it can be done and many are doing it and making great money for the future.
If you read this far you are thinking, "I have heard of this before and all I have to do is open a self-directed IRA." However, to truly set your IRA free, (what many call checkbook control IRA), a couple of steps have to be taken that will give you total control of your IRA funds and profound asset protection. Yes, your IRA's, other retirement accounts, and other investments are not protected from law suits and you can loose your nest egg.
Let me start by giving you some background information. First of all, most custodians, even true self directed custodians, require massive amounts of paperwork and numerous hoops to jump through in order for you to invest your IRA money in an "alternative" investment. This costs you time and money (custodian fees). To more effectively use your IRA, your IRA will instead place all of its assets into a limited liability company (LLC). Therefore, there is only one asset to be declared by the custodian to the IRS and this translates to fewer fees to you. Notice I did not say that your custodian manages your IRA. Then who manages the IRA? well, you of course.
Why an LLC? The LLC gives great asset protection and tremendous tax advantages. The LLC enjoys the asset protection of a corporation while it can be taxed as a partnership. Partnership taxation is great because the LLC itself will not pay taxes. Instead, the owner of the LLC pays taxes as if they earned the income. Who is the owner of the LLC? Your IRA is the owner of the LLC(a tax- exempt entity). Therefore, you can maximized your investment and pay no taxes, what a deal.
What are the "alternative investments" mentioned above? They are too multiple to mention here but I will try:
real estate, other LLC's, franchises, unsecured loans, corporations, mortgage notes, commodities and futures, joint ventures, tax liens and tax deeds, currency exchange, times shares, limited partnerships, timberland investment, real estatle options, commercial paper, hunt lease investments, stocks, bonds, mutual funds, annuities, ect.
Is the concept of an IRA owned LLC legal? Yes, and the case Swanson VS. The Commissioner in 1996 cleared up any doubts that anybody had about this issue. In this case the court rejected the IRS position that the business structure constituted a prohibited transaction. The IRS was so wrong that the judge had the IRS refund legal fees to MR. Swanson.
How can you create this magnificent business structure to increase money for your retirement years? Here are the simple steps:
1. Open a self-directed IRA account. 2. Transfer your IRA assets to the new, self-directed IRA account. 3. Establish a LLC in the state of your desire. 4. Apply for your LLC's employer's identification number (EIN). 5. Set up a brokerage account or bank account for your LLC. 6. When you are ready to invest instruct the custodian to place the IRA assets into the bank account or brokerage account of the LLC. 6. Start checkbook investing.
Finally, you can move into the sef-directed IRA owned LLC other retirement plans, 401ks, 403B and have other investors joint in with you. Good luck and happy investing.
Article Source: http://www.articlerich.com
J McGlothlin, IRA-LLC specialist. If you have further questions visit: www.kit-for-self-directed-ira-llc.com
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