No. of Recommendations: 3
Hey Kathleen:
All good questions. I left stuff out for brevity (if you could call that last post "brief") so here is some more info:

1. The IRA-LLC is held within your custodial account. In our case, we set up the LLC but it is held within the IRA account we set up with APS. Since a self-directed IRA can hold virtually any investments -including companies- this is allowed. And since you are not the DIRECT owner/member (APS is) this is allowed. You and/or your spouse/buddy/etc are merely a MANAGER of the company -not an OWNER/MEMBER. The company is a separate entity from you -checking accounts, savings accounts, properties......everything is held in the name of the company, not in your own personal name, so the self-dealing aspect is removed from the equation. But, as a reminder, you MUST be diligent in your paperwork/papertrails because if you are every audited you must be able to show with 100% certainty that a prohibited transaction has NEVER occurred.....or you suffer the consequences (collapse of IRA with all taxes due, 10% penalty if under 59.5 years of age, etc). Also, note that the IRA-LLC still does not allow you to do any actual physical work on the properties you purchase (i.e. no sweat equity allowed).

2. The tax paperwork is virtually nil. Because the IRA-LLC is held within the IRA, there is nothing for you to file -it is the custodian's responsibility to report the value of the LLC (indeed the value of the entire account which includes the LLC and any other investments you might have with them) similar to what TDAmeritrade, Schwab, Wells, or any other retirement account custodian must do when all you hold is stocks/mutual funds with them. The only difference is that YOU must provide them with the fair market value of your company so that they can report it. How do you do this? Simple (at least for APS) -they will accept the tax values of any properties the LLC owns, so you can just send them a copy of your annual property tax assessment/bill (some companies want annual appraisals of each property, which could get really expensive if you have a lot of different properties, but APS is ok with the method described above). They would also need bank statements from all of your business accounts. Note that they need to know the value of your company for 2 reasons: 1) To report the value to the IRS as the custodian/adminstrator of your account per the law, and 2) To calculate how much you owe them for their services to administer your account -generally a percentage of the account value and based on a sliding scale.

3. Deciding on the custodian took some time. We looked at fees, but we also looked at location. Since we live in Salt Lake City, we wanted a local firm and luckily they had an office here. The nice thing about having a local presence is the personal touch -I think it's always better to have face time with a person and, if you are not being serviced correctly, then you have the ability to go to their office and get resolution in person rather than over the phone/via e-mail. Also, having them local means that we've been able to send in a check request and pick the actual check up an hour later -which was important before we had the LLC formed.

4. The real estate purchase cost us nothing except a $15 wire fee. If we had gone with a cashier's check it would have cost nothing.

5. Regarding your desire to refurbish and sell. You must be careful on this point. The IRS infers that if you do more than 1 of these "flips" per year than you are subject to tax (google UBTI -and also UDFI as this could pertain as well). So even though the investment is held in an IRA, you would be subject to income tax on your investments if you flip more than 1 per year. There is; however, no constraints on buying and holding as many homes as you want per year.

Hope this helps!
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