Single-Member LLC (Checkbook IRA)

Single-member LLCs, also known as checkbook IRAs, are a unique investing tool that sophisticated investors utilize in order to facilitate the purchase of alternative investments.

The checkbook IRA gives the self-directed IRA owner what is commonly referred to as “checkbook control,” meaning the IRA owner, acting as manager of the LLC, is able to write checks directly out of the IRA to purchase investments. By using a single-member LLC, an investor can act more quickly to complete transactions and can also potentially save administrative costs incurred by the IRA. Single-member LLCs formed by self-directed IRAs can acquire the same types of alternative investments that traditional self-directed IRAs can, and are subject to the same investment rules and restrictions as the IRA.

Utilizing a single-member LLC within your IRA can be beneficial, but involves issues that are also complex. While checkbook IRAs can be very flexible, there is also an increased potential for an individual to engage in a prohibited transaction with this type of entity. An individual looking to use this type of entity should do extensive research and engage the services of a legal or tax professional familiar with this type of set-up to help minimize the risks associated with these entities. Advanta IRA does not give any legal endorsement or review to these types of entities, but you may use your IRA to invest in them if you feel comfortable doing so.

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The self-directed IRA forms a single-member LLC, and may enjoy the status and protection that an LLC provides. The IRA is listed in the LLC operating agreement as the single-member/owner and then an individual (in many cases, the IRA account owner) is listed as the manager of the LLC. Once the IRA has deposited cash into the LLC’s bank account, the manager of the LLC then has the ability to direct funds out of the checkbook for the LLC. An individual pursuing this option should check with a legal advisor about the wisdom of personally serving as the manager of the LLC as the manager of the LLC will be tasked with ensuring the LLC and IRA stay compliant within IRS guidelines.

Note: Do not use a one-stop shop to set up your IRA and the LLC for you. You can get better (and cheaper) service by using Advanta IRA and your local attorney. If you need a reference for an attorney or CPA to help you set up the LLC, please contact Advanta IRA and we can provide you with some referrals.

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