A Checkbook IRA LLC offers you enhanced control over your retirement portfolio by allowing you to set up an LLC owned by your IRA. This gives you the ability to invest directly in assets like real estate and write checks quickly without needing approval from a custodian for each transaction.
Some believe that the only way to invest in real estate is through a Checkbook IRA LLC. However, it’s entirely possible to purchase real estate directly with an IRA. That said, in certain situations, using an IRA LLC may be a more efficient strategy for real estate investors. As with any approach, there is no one-size-fits-all solution.
However, to set up a Checkbook LLC, several key documents are required to ensure the LLC is compliant. In this blog, we’ll break down the essential documents to get started.
The Role of an LLC in a Checkbook IRA
In a Checkbook IRA, the LLC can provide limited liability protection by separating your personal assets from the IRA-owned investments. It’s important to note that the LLC is owned by the IRA, not the individual.
These accounts have checkbook control, which refers to the ability of the IRA owner to manage investments directly through the LLC’s checking account, without needing to go through the custodian for each transaction. By having checkbook control, you can make timely investments and handle IRA-owned expenses directly from the LLC’s checking account.
How to set up an LLC for a Checkbook IRA?
Below, we’ll go through the main documents and requirements. When setting up a Real Estate Checkbook IRA LLC at Equity Trust, our affiliate Equity Specialty Services can complete the process in-house for you.
Talk to an IRA Counselor to learn more about getting started.
Articles of Organization
The Articles of Organization is the foundational document that officially forms your LLC. It must be filed in the state where the LLC will be established. This document includes basic details about the LLC, such as:
- Name of the LLC: This will be the name that precedes “LLC” on all official documentation. You can name it whatever you like as long as the name hasn’t been taken. Remember your real estate investments will be titled using this name.
- Members: Members are parties that own all or a portion of the LLC. Your IRA has its own vesting and EIN that will be represented as the member.
- Managers: The manager is the person making decisions on behalf of and representing the LLC. In most cases, the IRA holder appoints themselves as the manager.
- Registered Agent: Registered Agents are the person or business that accepts mail on behalf of the LLC. In most cases, the manager acts as the registered agent, though you may require a separate registered agent if your LLC is established in a state where the manager doesn’t hold an address.
State-specific requirements will vary, but this document is essential in creating your LLC and gaining checkbook control.
Operating Agreement
An Operating Agreement, while not required, is another key document that governs how your LLC will function. It outlines the roles and responsibilities within the LLC and contains language about complying with IRS guidelines for a self-directed IRA. Important elements of an Operating Agreement include:
- Ownership: It must clearly state that your IRA is the sole member or owner of the LLC, unless it is a multi-member LLC. In that case, it must list the percentages of ownership between members.
- Management: The document should designate the manager or managers of the account. Anyone can be a manager, but most of the time the account holder appoints themselves.
- Compliance: The agreement should confirm that the LLC will operate in full compliance with IRS, including avoiding prohibited transactions.
The Operating Agreement is important for ensuring that the LLC’s operations meet IRS requirements and that the separation between your personal assets and IRA assets is maintained.
Employer Identification Number (EIN)
The Employer Identification Number (EIN) is a tax identification number that the IRS assigns to your LLC. You’ll need this number to open a bank account for the LLC and for tax reporting purposes. Even though the LLC may not have employees, an EIN is still required for financial reporting and maintaining the LLC as a separate entity from your personal finances.
Keep in mind your IRA and LLC will each have separate EINs.
IRA LLC Bank Account
Once the LLC is established and has obtained an EIN, the next step is to open a bank account in the LLC’s name. This is where all of your IRA funds will be deposited and managed. The bank account must be in the name of the LLC – not in your personal name. All investments and expenses must flow through this account, ensuring that the IRA funds are kept separate. You will need the EIN and Articles of Organization to open the account.
If you use Equity Specialty Services for your LLC, we will send you an application to open a checking account with Titan Bank. Titan Bank has the technology and support designed by and for self-directed IRA investors.
State-Specific Filings and Annual Reports
Most states require LLCs to file annual reports and pay renewal fees to maintain good standing. Failure to comply with state-specific filing requirements can result in penalties or even dissolution of the LLC.
Annual reports must be filed with the state where your LLC was formed, and it typically includes updates on the LLC’s ownership and contact information. Each state has its own fees for LLC renewals. Equity Specialty Services can assist you with filing these reports.
Beneficial Ownership Information Reporting
As part of federal regulations, LLCs are required to submit a Beneficial Ownership Information (BOI) report. This identifies the beneficial owner of the account, meaning those who own and/or control the LLC.. This is to ensure transparency and compliance with anti-money laundering regulations.
How we can help
Setting up a Real Estate Checkbook IRA LLC involves several steps and requires several legal and financial documents. Navigating this process on your own or with a separate attorney can be time-consuming and complex. Equity Specialty Services can make this process easier.
Equity Specialty Services can handle everything from filing Articles of Organization and drafting the Operating Agreement to obtaining your EIN. In combination with Equity Trust, getting your IRA opened and funded can be much simpler.
Next steps
A Real Estate Checkbook IRA LLC offers a powerful way to take control of your retirement. It allows you to take full advantage of the benefits of tax-advantaged accounts while giving you the freedom to grow and protect your retirement savings.
With greater flexibility, you can seize investment opportunities faster and diversify your portfolio like never before. By leveraging a Real Estate Checkbook IRA LLC, you’re putting your retirement savings in your hands, taking a more active role in your future.
If you’re ready to begin, contact an IRA Counselor today. Learn more about how to get started with a Real Estate Checkbook IRA LLC.
