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The LLC-IRA for Real Estate Investing

By now I am sure you’ve heard that it is legal, permissible, and profitable to using your self-directed IRA, SEP, or Roth IRA. If you’ve been using this technique, you know the drawbacks – delays in funding, fees from your custodian, potential lawsuits against your IRA.

Well, there’s a solution… the LLC-IRA.

Instead of investing directly from your IRA, we set up a single-member LLC that is owned by your IRA. Your IRA account is the sole member of the LLC. The LLC is a legal entity that has powers and protections that are not possessed by any individual or by any regular IRA.

The combination of the self-directed IRA custodian and the LLC produces great results. This is an entirely new type of LLC, not your run-of-the-mill LLC you may have done before. It generally requires an attorney to draft the operating agreement and provide an opinion letter to your IRA custodian. If the LLC operating agreement is improperly drafted, the entire LLC-IRA may be disqualified and taxed.

Lawsuit Protection of Your IRA Account

A single member LLC (Limited Liability Company) is a business entity that gives the liability protection of a corporation but is "disregarded" (ignored) for federal income tax purposes. It is a separate legal entity under state law, so creditors of your LLC (as in the case of a tenant injured on the property) cannot go after the member (your IRA account) or you (the Manager).

"Checkbook" Control

As manager of your LLC-IRA, you can write checks as you need to for purchasing property, paying property expenses, or loaning money. If you want to do a deal in a hurry, you can run down to your bank and get a wire or certified funds the SAME DAY, as in the case of a foreclosure auction.

Keep in mind that any transaction you can’t do in your IRA account you are also prohibited from doing in your LLC-IRA. You should not attempt any transaction in your LLC-IRA without competent tax and legal advice.

Steps to Form Your LLC-IRA

First, you need to transfer your existing IRA to a custodian that allows complete self-direction of your account. Big firms like Fidelity and Schwab generally don’t allow you to direct your account into .

Second, you need to hire a professional to create the LLC.

Third, you "fund" the LLC by directing the money from your IRA custodian to the LLC’s bank account.

Fourth, you start investing in your LLC-IRA.

Custodial fees are much lower because the IRA only has one asset, the LLC.

Is this all Legal?

The legality of an IRA owning an LLC is based on the case Swanson vs. The Commissioner in 1996. In Swanson, the court ruled in favor of the taxpayer using a corporation owned by his IRA, where he was the president. The LLC, by implication should be the same.

Should you have any questions about the legality of your LLC-IRA, speak with a qualified attorney to advise you through the process.


  1. Comment by Andre
    February 10th at 10:34 am 

    Thanks. Do you have a recommendation (company) that can help in setting up the LLC.

  2. Comment by Marco Santarelli
    February 10th at 10:35 am 

    Although we don’t recommend any specific companies or attorneys, you can start your search with the following company websites:

    http://www.PenscoTrust.com
    http://www.TheEntrustGroup.com
    http://www.GuidantFinancial.com

  3. Comment by Scott
    February 10th at 11:35 am 

    The best source I know of for an LLC/IRA combination is James R. Baker, Attorney and Curtis DeYoung of American Pension Services. We have them speak to all our Investors Associations on a regular basis. I’d start with a phone interview with Jim first and if necessary he will hook you up with APS.

    There are very few Attorneys that understand how to properly set up and IRA-LLC.

    James R. Baker
    http://www.jamesrbaker.com
    jim@jamesrbaker.com
    (801) 438-1222

  4. Comment by Darcie Newton
    February 10th at 12:40 pm 

    I’ve worked with Your Entity Solution for years and found them to be of the highest integrity and willing to educate their clients. They offer a checkbook IRA LLC as well. Check them out at http://www.yourentitysolution.com.

  5. Comment by Jack Benke
    February 11th at 9:39 am 

    As a Certified Estate Advisor with NAFEP, I can assist plan participants with setting up their Self Directed IRA, 401k…., through the National Association of Fiancial & Estate Planning (NAFEP). Call me for assistance, if your considering holding non-traditional investments in IRA or other Qulaified Plan. I can be reached at 866-639-0212.

  6. Comment by E W BROSSMAN
    February 16th at 10:57 am 

    Our nonprofit, Home Ownership Mortgage Education (HOME) is excited by the new opportunity to work with private lenders in providing down-payment and rehab grants for investors and home ownership.

    Nonprofits, over the last 20 years, have assisted thousands of home buyers with down-payment grants. Today, those grants, combined with conventional lending, are no longer available to home buyers due to government limitations. The private lenders has no such limitation.

    The new private lending arena is growing rapidly and has opened up a huge need for the nonprofits to provide grants for down-payment and rehab. These loans, many times, carry a higher interest rate than conventional loans and provide funds for closing when conventional lenders can not.

    HOME creates the funds for these grants by buying distressed properties from sellers and reselling to investors and home buyers for their market value. The difference between what HOME nets on those two transactions, provides the funds for the grants.

    Example: a $100,000 property is purchased from the seller for a distressed price of $60,000. HOME then resells to the investor or home buyer for the $100,000 market value. HOME now has the $40,000 difference to provide $20,000 down-payment, and closing costs and rehab money in the form of grants.

    The price HOME pays for the distressed property can be negotiated for less many times because the nonprofits can offer special deductions for “bargain sales to nonprofits” and special credits to banks under the “Community Reinvestment Act”.

    When it comes time for HOME’s buyers to refinance with rate and term loans, the 80% or less LTV loan can have less challenges for refinance than “cash out” refinances.

    Our website is being updated and redesigned for private lending. http://Www.home-grant.org

    This opportunity with the private lending community can and will be the new wave of the future.

    Thanks,
    Bill Brossman, HOME

  7. Comment by MikeKlenner
    July 1st at 3:23 am 

    Investing in real estate IRA is a profitable business. Though it does not offer heap of money at short duration, there is no need to worry about the profit because there would be always demand for land and property.

  8. Comment by Brian Fleming
    August 31st at 7:40 am 

    Not only is this a good article, it is what a lot of us should be doing.

    Because of that my REIA has switched course just a little to talk more about this and other Alternative investments. As a matter of fact we now have a system set up, kind of like a “One-Stop-Shop” to put this all in place for you.

    You can get a FREE e-Book on the subject at:

    https://msc.infusionsoft.com/go/NSICAEEBRP/fleming/

  9. November 14th at 3:57 am 

    LLC-IRA may provide us taxation facility which we get from LLC. The idea is unique. But i want to know about forming corporation-IRA. is it possible or legal to form a corporation IRA?


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