Self-directed Checkbook IRA LLC FAQ Can I invest my Self directed IRA in my existing LLC?

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The solo 401k plan, commonly referred to as self-directed Solo 41k is the retirement plan of choice for self-employed individuals or owner-only businesses including for the features highlighted below:

-The highest contribution limits for any defined contribution plan including up to $57,000 (or even $63,500 if you are 50 or older) for 2020 (for 2021: $58k or $64.5 if you are 50 or older).

-The ability to make pre-tax, Roth, and even Mega Backdoor Roth contributions.

-401k participant loans of up to $50,000

-Invest with checkbook control in real estate, cryptocurrencies, notes, private placements, and other types of alternative investments.

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Self-directed Checkbook IRA LLC FAQ: Can I invest my Self directed IRA in my existing LLC?

If you’re looking to take control of your retirement funds and invest in non-traditional assets like real estate, private loans, or even your own business, a self-directed individual retirement account (IRA) may be the perfect fit for you. One popular option for self-directed IRAs is the Self-directed Checkbook IRA LLC. But what if you already have an existing limited liability company (LLC)? Can you invest your self-directed IRA in it? In this article, we aim to answer this frequently asked question.

Before diving into the specifics, let’s briefly cover the basics of a Self-directed Checkbook IRA LLC. This structure allows you, as the IRA account holder, to take more control of your retirement funds by establishing an LLC wholly owned by your IRA. With a checkbook control IRA, you have the power to invest in a wider range of assets compared to a traditional IRA or a self-directed IRA custodian.

So, can you invest your self-directed IRA in an existing LLC? The short answer is yes, you can. However, there are certain rules and restrictions that you must follow to ensure compliance with IRS guidelines.

1. Prohibited Transactions:
According to the IRS, you are not allowed to engage in self-dealing, which means you cannot invest your self-directed IRA in any entity that you or your disqualified family members have a direct or indirect ownership interest in. Disqualified persons include yourself, your spouse, your lineal ancestors and descendants, and certain fiduciaries or service providers to your IRA. Therefore, investing your IRA funds directly into your existing LLC, where you hold an ownership interest, would be considered a prohibited transaction.

2. Indirect Investments:
While direct investments in your existing LLC are prohibited, there is a way to indirectly invest your self-directed IRA funds in a business you own or manage. By establishing an LLC where your IRA owns 100% of the membership interests, you can then invest the funds into the new LLC. This new LLC can either lend money to or purchase shares of your existing LLC, effectively indirect investments. This structure allows you to enjoy the tax benefits and asset protection of an IRA while still owning or managing your business.

3. The Business must be Arm’s Length:
If you choose to invest your self-directed IRA in an existing LLC indirectly, it’s crucial to ensure that the transaction is conducted at arm’s length. This means that all actions should be taken as if you were dealing with an unrelated third party. There should be no preferential treatment or personal benefits derived from the transaction. It’s highly recommended to consult with a qualified tax and legal professional to guide you through the process and ensure compliance.

In conclusion, while you cannot invest your self-directed IRA directly into your existing LLC due to IRS restrictions on self-dealing, an indirect investment is possible through the establishment of a new LLC wholly owned by your IRA. This structure allows you to maintain control over your retirement funds while indirectly investing in your business. Nevertheless, it’s important to consult with professionals experienced in self-directed IRAs, tax law, and business transactions to navigate the complex regulations and ensure compliance with the IRS guidelines.