The IRA LLC has historically been the tool of choice for the IRA account owner who prefers to have what is marketed as "checkbook control" of their IRA funds. Of course, strict compliance with IRS and DOL Prohibited Transactions is a must.
Where many providers only offer the IRA LLC to their clients, PGI can assist the client with either the IRA LLC or IRA Trust. While this post is concerning the establishment of the IRA LLC, please feel free to learn more about the IRA LLC vs. IRA Trust comparisons.
For those of you who do not want to read the whole post, here are the abridged notes:
1. Let's visit;
2. Completion of PGI order form;
3. Assisting with IRA custodian application;
4. Filing for Articles of Organization for IRA-owned LLC;
5. Completion of SS-4 Form and Filing for LLC EIN with the IRS;
6. Preparation of Special Purpose LLC Operating Agreement;
7. Opening LLC Bank Account;
8. Funding your LLC Account; and,
9. Investing from your LLC Account
Whether you are interested in the IRA LLC or an IRA Trust, a discussion is always suggested. Not only is this good for both the client and PGI, but you will also confirm which self-directed tool is best for you, or discover an option you hadn’t even considered! As the saying goes, “a well-educated client is a good client.”
When you are ready to commence the plan, you can engage PGI’s services for the establishment of your IRA LLC by completing PGI’s order form. It is simple and quick…it might take you 10 minutes!
There are several IRA custodians that PGI works through, and they are all IRS-approved, FDIC-insured custodians. They also share a commonality: they do not sell investments! Their only purpose is to be an approved, passive custodian (required by IRA law) and facilitate the IRA account establishment and on-going reporting activities.
Once you advise your preference of custodian, PGI will forward that custodian’s online application. With all of the custodians, your IRA account should be established within 24-48 hours.
In addition, during the process, PGI will facilitate other custodian forms that will need to be completed including, but not limited to: transfer forms, investment direction or investment authorization forms, representative forms, etc. PGI will assist you with any form that needs to be completed during the IRA LLC process.
You will be able to choose the naming of your LLC in the State in which it is being established. There are some names that cannot be used, and these can vary by state. Typically, names that reference insurance, banks, etc. cannot be used. Also, most/all states will not permit names for LLCs that are not politically correct.
Once the name is cleared as being available, PGI will file for the Articles of Organization for your IRA LLC.
For the IRA LLC account to be opened at a local bank, credit union or brokerage firm, an EIN will need to be established for the LLC. PGI will process this request and secure the EIN through the SS-4 form.
While an IRS form, the SS-4 is not sent to the IRS. Its only purpose is to secure your permission to file for the EIN on your behalf.
You will also be required by the financial institution (e.g., bank) to complete a W-9 for the responsible tax-paying entity. Please review sample W-9s for a Single-Member LLC or a Multiple-Member LLC.
PGI will prepare the special-purpose Operating Agreement for the LLC. Not only is this a requirement, but the special-purpose Operating Agreement also has specific IRS language on how the LLC, with the IRA as its member, must operate and conduct investment activities on behalf of the IRA. In most cases, the IRA custodian will only accept the Operating Agreement from a CPA, attorney or firm such as PGI, and not the account owner (you).
For bank-account opening purposes, PGI will provide the Operating Agreement to both the IRA custodian (for approval and processing) and the LLC manager (typically the IRA account owner (you)).
Option #1 — Banks and Credit Unions
Any bank or credit union can open the account, but it does not mean that all will. PGI will assist you with what national banks may be easiest to work with and how best to open the account. If needed, PGI will also assist you in speaking with the bank, if needed/desired. There are pros and cons to opening the plan’s “host” account at a bank or credit union. Bottom line: if one bank or credit union does not open the account, “walk down the block” to the next bank or credit union! You will be able to open the account.
You will typically open the IRA LLC as a business checking account at the bank/credit union.
Option #2 — Brokerage Firms
Remember, we are opening the IRA LLC account not an IRA. As a result, most brokerage firms will not assist with this, with one exception…TD Ameritrade. The IRA LLC account can be opened at TD. This account is the LLC account and not the IRA. TD is possibly the only brokerage firm providing this option.
The obvious reason why someone would choose the brokerage option over a bank is this account will still provide you checkbook/wire control over your IRA LLC assets, but also the ability, if you wanted, to purchase “traditional” assets from TD Ameritrade. The use of a brokerage firm can be popular for those individuals who want one account where they can invest both traditionally and non-traditionally. Also, many people, when between non-traditional investments, want to have options on keeping the money “active” vs. keeping the funds in a money market savings account at a bank or credit union.
Once your IRA account has been funded and all LLC documents have been submitted and processed by the IRA custodian, it is now time to fund your IRA LLC account. The IRA custodian will be able to fund your LLC account with either a wire, ACH transaction or check. Funding will not be to you personally, rather sent to you or the account in the name of the LLC.
W-9 Form - The bank will require a W-9 to be completed for the establishment of the LLC bank account. The purpose of the W-9 form is to confirm the individual/entity (SS#/TIN) that is the responsible party for tax-reporting purposes. Unfortunately, in many cases, the W-9 is not correctly completed by the IRA account owner/LLC manger.
The W-9 form for an IRA LLC will typically be used for the account opening process and providing to an investment sponsor. Regardless of who it might be provided to, it is important to correctly complete the form. While the incorrect completion of the W-9, in and of itself, is not a Prohibited Transaction, it can cause undue stress over correctly reporting the investment returns received by your LLC. As an example, you do not want an incorrectly reported 1099-R which shows income to you when the income belongs to your tax-deferred (or exempt) IRA.
One-Member or Multi-Member LLC - While the majority of individuals creat a single-member LLC (disregarded entity), there are times when there are more than one member (e.g., two IRAs) of the LLC. This could be a situation where two IRAs (e.g., from the same IRA account owner) are members OR two IRA (e.g., IRAs belonging to two spouses)are members of the IRA LLC. In the case of the one IRA-member, it will be considered a single-member, disregarded entity. If more than one, it will be considered, for tax reporting purposes, to be a partnership.
Please review a sample W-9 for both a single-member and multi-member IRA LLC.
With your IRA LLC account now being funded with you as the manager of the LLC, you are now able to make IRS-compliant investments on behalf of the IRA LLC. All investments must be titled in the name of the LLC and all investment returns must be payable to the LLC.
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