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IRA LLC Custodian Services For Your Checkbook IRA Account

Considering A Checkbook IRA? Sunwest Trust Offers IRA LLC Custodian Services Nationwide

Sunwest Trust, Inc., is one of a few IRA LLC custodians in the country that allows you to invest your self directed IRA account into a single member IRA LLC.

Although this particular type of LLC arrangement is not necessary to invest in alternative IRA investments, it can be more convenient and more economical for some investors.

The purpose of an IRA LLC (aka checkbook IRA) is to offer you the convenience of checkbook control, or more specifically checkbook writing privileges over your retirement funds.

The process of acquiring checkbook control of your IRA is relatively straightforward, however, we don’t recommend setting up a checkbook IRA on your own.

How To Set Up an IRA LLC, Step-by-Step

  1. Form an IRA LLC with the professional assistance of either a seasoned tax attorney or experienced IRA LLC facilitator who specializes in setting up IRA LLC regularly, and can ensure the entity is set up to meet your specific investment needs.
  2. Set up a checking account in the name of your newly formed LLC.
  3. Fund your LLC, by requesting your IRA LLC custodian fund the special business entity directly from your IRA. Note: Don’t co-mingle non-IRA with IRA funds, as this is a prohibited transaction.
  4. Ensure the business entity is set up with your IRA as the Member-Owner.
  5. Pick a Manager of the LLC. The Manager is the person who is in charge of making decisions on behalf of the LLC. You or anyone you choose can act as the manager of the IRA LLC.
  6.  The Manager of the LLC has assigned special privileges. e.g. The Manager can set up a checking or brokerage account in the name of the LLC, can choose self-direct investments and can write checks in the name of the IRA LLC.

Creating A Checkbook IRA Does Not Exempt You From Working With An IRA Custodian

Once a year, you are required to report to your IRA LLC custodian the value of the assets in your retirement account. Assets within your IRA LLC account are reported on an Asset Valuation Worksheet. The Asset Valuation Worksheet provides Sunwest Trust with the fair market value (FMV) of your account, which we then use as part of our custodial duties to report annually to the IRS on a form 5498 on behalf of your IRA.

IRA LLC custodian

Sunwest Trust Can Act as the Custodian For Your Checkbook IRA

Is An IRA LLC Even Necessary?

It’s a popular and common myth in the IRA industry that you must have an LLC in order to have a self-directed IRA. However, this simply isn’t true.

You may open an IRA with any custodian who allows you to invest in “non-traditional” or alternative assets, such as real estate, tax liens, gold, private placements, etc. and begin exploring those investment options immediately.

In this scenario, you will usually need to fill out a form or a direction letter telling your custodian what you want to purchase, how much money to send and where to send the money. You will need to provide your custodian with something showing proof of investment for your purchase.

Depending on the investment, this will usually be something like a deed, promissory note, operating agreement, etc. It is very important to review any and all potential investments with a trusted CPA or tax professional before proceeding with your purchase.

How Does Convenience Factor With IRA Choices?

If you do not have to have an LLC, then why do so many people choose to use them? The short answer is convenience. “Checkbook Control” has been a popular buzzword in the IRA industry for many years now. All this means is that a self-directed IRA client is using an LLC, or some other legal entity to control their IRA funds.

An IRA LLC can also offer savings and a lower total cost of ownership. For example, although Sunwest Trust does not charge their fees this way, hypothetically if a particular custodian charges a per asset fee, and if your IRA owns 5 assets, then you would have to pay a fee for each asset owned by the IRA. However, in the case of an IRA LLC, the custodian typically would only charge for one asset, the LLC itself owned by the IRA. In this scenario, the LLC would own the 5 assets and technically not the IRA for billing purposes, thus lowering your IRA fees and increasing your return on investment!

May I Really Have Checkbook Privileges in My IRA?

With an LLC, you direct your custodian to purchase the membership units of your LLC in the name of your IRA (Example: “Sunwest Trust Custodian FBO John Smith IRA”). Then, you will open a checking account for the LLC at the bank of your choice. You may then act as an unsalaried manager, which gives you check writing privileges for the account.

Having the convenience of checkbook control means that anytime you find an investment you are ready to make, you simply write a check out of the account and take title to the investment in the name of your LLC. You will make all of your investments through the LLC and once a year, you will need to send your custodian a Fair Market Value (FMV) for the LLC. This is what will be reported the IRS on your 5498 form. Please keep in mind ALL of the same IRS rules and regulations governing self directed IRAs still apply even with the autonomy and flexibility of the IRA LLC investment vehicle.

If You Have An LLC Account, You Must Still Abide By The IRS Rules

Setting up an IRA LLC does not exempt you from the IRS rules regulating IRA prohibited transactions. For example, you still cannot commingle investments funds with personal funds, invest in prohibited transactions or do any business dealings with disqualified parties. If you have specific questions about specific guidelines or the types of investments you can engage with inside an alternative IRA account, then we suggest versus trying to wing it or adopting a do-it-yourself mentality that you instead reach out to a competent, experienced IRA advisor, CPA or tax attorney for assistance.

Are Self Directed IRA LLCs Legal?

At the time of this writing, there isn’t any specific IRS rules or case law prohibiting the formation of single-member IRA LLCs.

Despite this, many IRA custodians including Pensco, Sterling Trust and Entrust either don’t allow you to invest your IRA into a single-member LLC, which is their prerogative or they say you can, but the devil is in the details. It is not until you set up your IRA LLC with the custodian that you then find out just how incredibly cumbersome the process is to purchase an investment even with an LLC, leaving many investors to ask themselves, “What’s the point?”

Sunwest Trust Can Act as Your IRA LLC Custodian For Your Checkbook IRA

Consider Sunwest Trust as the Custodian for your IRA LLC. Sunwest Trust is one of the few IRA custodians, which allows you to invest in a single-member LLC.

Generally, without checkbook control, it can be time-consuming to request your funds from your custodian and then wait for a check or a wire to be sent out.

At Sunwest Trust, we get most transactions completed within a day or two, but with some other custodians, you may end up waiting as much as 5 business days for your transaction to be processed.

Even if an IRA LLC is not the right investment vehicle for you, Sunwest Trust can often get most transactions completed within a day or two.

If you need assistance establishing a self directed IRA account, then call us today and one of our knowledgeable IRA specialists will be happy to assist you.

Disclaimer: Sunwest Trust does not provide legal or investment advice. This blog is just to provide you with general information about self-directed IRAs and other topics. We strongly urge you to speak with a CPA or tax professional before making any investment decisions on your own.

Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.