IRA LLC FAQ

Changing the LLC state

How to change the LLC state?
If you would like to change the filing state of the LLC after your IRA LLC has been established and funded, it may be possible to do so.

You may have moved from one state to another, for example, and you would like to change the filing state of your LLC from your previous state to your current state.

If the following are true:

Your IRA custodian is Solera, and

The LLC name will remain the same

Then Solera will allow the LLC state to be changed, while keeping the following the same:

The EIN for the LLC

The bank account for the LLC

Please do the following:

File for the LLC with the new state under the same name

Close the LLC with the current state

Each state has different requirements or procedures for closing the LLC in that state. Check the current state’s website for specific instructions

Once the new state LLC is filed, amend the Operating Agreement of the LLC to reflect the changes

Update address for EIN with IRS

Submit the new LLC documents to Solera, along with your address change, if you have not done so already

Crypto in a Personal Storage Wallet

Can I Hold Cryptocurrency in a Personal Storage Wallet?
Cold storage wallets, also known as offline or personal hardware wallets are a way to hold your own keys to your Bitcoin and cryptocurrency holdings.

Some clients prefer to hold their own keys (and keep their crypto in a cold storage wallet) to avoid potential hacking threat on exchanges. The most popular hardware wallet companies are Trezor and Ledger.

Keep in mind storing your crypto on a hardware wallet requires additional technical skills. If you are not technologically savvy, we’d recommend you keep your crypto holdings on an exchange or with an insured professional custody solution.

The IRS has not yet issued guidance on holding crypto owned by a Checkbook IRA LLC in a hardware wallet. While we believe it’s allowable, there are a few important best practices to follow:

Only store retirement-owned crypto assets in the account on your hardware wallet. Never put personal funds in the same account

Always keep excellent records. As the LLC manager, it is your responsibility to keep track of how you originally purchased the crypto (with retirement funds).

Only store crypto in the sub-account for your retirement funds on the hardware wallet that was purchased with retirement funds. You should be able to trace back the provenance (history) proving the original exchange account was opened in the name of your retirement account (IRA LLC) and that only retirement funds were deposited into that account, used to buy the crypto and then move that retirement-owned crypto onto your hardware wallet.

Consider having one hardware wallet for just your retirement-owned crypto and a second hardware wallet just for personal (non-retirement crypto).

Note: Using a hardware wallet requires a level of technical expertise and operational security measures. If you lose the keys, password, PIN, or recovery seed phrase to your hardware wallet those assets may be gone forever. If you lose access to your hardware wallet holdings, there is no way to get them back. If you are not 100% comfortable with highly technical endeavors, we’d recommend you leave your crypto on an exchange or store it with a professional insured custodian.

Private lending out of my IRA LLC

Can I do private lending out of my IRA LLC?
Yes. You can use your IRA LLC as a bank and lend money to other non-disqualified persons. Your IRA LLC would receive principal and interest just like a bank. The account holder chooses the borrower, principal amount, interest rate, length of the term, payment frequency and amount, and whether the note is secured by collateral or not.

Benefits of lending from your IRA LLC:

You have strategic control over the person/entity to whom you lend money as long as the person/entity is non-disqualified

Lending is an asset that you have experience with and understand

The return on your money is pre-established

You choose lending terms and collateral with which you are comfortable

Loans can potentially yield a cash stream

Important things to know:

The loan must be a real economic transaction

The LLC is its own financial and legal entity, and it is separate from your personal finances

As a separate legal entity, the LLC has its own name

The LLC is the lender, not the account holder. Therefore, all income goes back to the LLC.

All loan documents must be in the name of the LLC, not your personal name

For the documents associated with the loan to be complete and legal, they need to be signed by the LLC manager

The LLC manager can hire professional help to generate loan documents (promissory note, deed or trust or mortgage, etc.) and/or loan servicing. All expenses for this process will be paid by the LLC.

Office Equipment for IRA Use

Can I purchase a fax machine/scanner using my IRA/LLC bank account? This will be used exclusively for the properties that I will purchase using the IRA LLC. It will not be used for any other personal purposes.

We strongly recommend against doing so.

While your intention may be to use this scanner/copier/printer/fax machine exclusively for the IRA, the machine will be located in your home. This makes it likely that either yourself or someone else in your household will use the machine for personal benefit, even without meaning to or without you knowing. This would create a prohibited transaction.

Accredited Investor

I'm considering investing my Checkbook IRA into an investment that only allows accredited investors. How does the Checkbook IRA qualify to be accredited?
In order for a IRA to qualify as an accredited investor, the IRA owner must qualify.

Annual income of over $200,000 single, or $300,000 married, in each of the past 2 years.

Net worth in excess of $1,000,000, not including equity in investor’s personal residence.

Filling out a W-9 for the IRA LLC

How do I fill a form W-9 out for the IRA LLC?
Opinions differ on which EIN to use on Form W-9 for an IRA LLC. We recommend that you confirm with your CPA for your specific situation.

In general, there are two options for which EIN to use on Form W-9:

Use the EIN of the LLC, which was obtained for your LLC and included in your set of LLC documents

Use the EIN for the IRA, which you have obtained yourself

You can obtain an EIN for your IRA yourself by using the IRS EIN website: https://sa.www4.irs.gov/modiein/individual/index.jsp

Under “What type of legal structure is applying for an EIN?,” choose “View Additional Types, Including Tax-Exempt and Governmental Organizations”

Under “Additional Types,” choose “IRA”

Based on your CPA’s recommendation, the form can be completed as follows:

Line 1. Name: Enter the name of your IRA that is part of your IRA LLC, e.g. if your IRA is at Solera, this would read: Solera National Bank CFBO (your name) IRA

Line 2. Business name/disregarded entity name: Enter the name of your LLC

Line 3a. Federal tax classification: Check “Other” and enter “IRA Account“

Line 4. Exemptions, Exempt payee code: Enter code “1” since the IRA (and the IRA-owned LLC) is an exempt payee

Line 4. Exemptions, Exemption from FATCA reporting code: Enter “A“

Lines 5 and 6. Address: Enter the mailing address for the LLC

Part I. Taxpayer Identification Number (TIN): Under Employer identification number, enter the EIN of the LLC or the EIN of the IRA, based on your CPA’s recommendation. Leave the “Social security number” section blank.

Part II. Certification: Sign and date as the manager

Peer to Peer Lending Using Lending Club

Is participating as a lender in peer-to-peer lending platform such as Lending Club okay in my IRA LLC? They do support opening a Self-directed IRA account, but the confusing part is that my funds are already inside an IRA LLC.

Yes, you can invest using Lending Club platform with your IRA LLC. You will need a corporate account to do so. More information here:

https://www.lendingclub.com/public/investment-account.action

https://kb.lendingclub.com/investor/articles/Investor/What-are-Lending-Club-s-investment-account-options/?l=en_US&fs=RelatedArticle

EIN for the LLC

I was provided with the separate Employer Identification Number (EIN) for my LLC. Do I need to have an Employer ID number for this? My understanding is that LLC is just a pass through and I can use my social security number.

You are correct that the LLC is a pass through entity, but the member of the LLC is NOT you, but your IRA. While you are the account holder of your IRA, it is a separate entity from you and has different tax treatment. Any transactions you conduct in your Special Purpose LLC do not affect your personal tax status, you can not take tax deductions for any expenses you incur in the LLC. If your LLC engages in outside business activity, it will be required to file its own tax return, separate from your personal tax return.

Problems with Opening Bank Account for the LLC

I want to open a new account for my LLC. After I explained to the banker that my LLC is owned by the IRA and I'm the manager of it, they refused to open the account for me. What do I do?
This problem is the result of you giving them too much information. Most bankers are under-trained and ignorant when it comes to this type of setup.

Here is what I normally suggest:

Call the bank (instead of going to the branch in person). Preferably use the same bank where you already conduct business.

Ask them this question: “Can you open a business account for the LLC?” Most financial institutions will be able to open a business account for the LLC. However, when you start mentioning IRA, etc. they get confused, afraid, and may decline your request.

If they answer yes, tell them that you would like to open a business account for the LLC and deposit $80,000 check (or whatever the amount is) at the time of opening.

Ask if you can email them all required documentation so that they can prepare everything for you. This way, when you come into the bank, all you have to do is to sign some documents and deposit the check. (Doing this over the phone/email will save you the time of going into the branch in case they are not willing to open the account for some reason).

Ask which documents they need. Typically they would need:

Business EIN, letter from the IRS

Operating Agreement of the LLC

LLC Certificate of Organization

Copy of your ID

After you receive the confirmation that your LLC bank account is ready to be opened, make an appointment to come into the branch, sign docs and make your initial deposit.

Important: Do not give them any additional information that the LLC is owned by your IRA, etc. Doing so can result in potential failure in opening the bank account.

IRA LLC and Loans

If I am short on funds for investing in a real estate deal, can I take out a short term loan from a friend or relative? Does the loan need to be paid back with funds from the LLC?

If you don’t have enough funds and not able to rollover additional funds from another qualified account or make contribution, then taking a loan to finance your investment is possible. You want to make sure that you are not taking a loan from a disqualified person.

You also need to make sure that you’re not providing a personal guarantee. Only the LLC is receiving the loan and there is no personal guarantee. This will make the loan non-recourse.

Is it possible to use my IRA LLC as collateral for a third party loan?

Non-Recourse Lenders

Can you provide a list for non-recourse lenders?

Can I obtain financing for an asset purchase in my IRA LLC?

Yes. The financing will have to come by way of a non-recourse loan. A non-recourse loan is a method of financing in which the IRA account holder will not be needed to personally guarantee the loan, nor will the other assets of the borrower (the LLC or an IRA) be used to secure the loan. The only action a lender can take in case of default of the loan is to acquire the asset on which the money was loaned.

Taxation Rate

What determines the taxation rate applied to profits for financed properties?

For an IRA LLC the taxation rate is determined by the amount of leverage you’re using. For example: eighty percent is leveraged and put twenty percent of cash is put into the property with eighty percent borrowed, then eighty percent of the income, eighty percent of the gains will be taxable.

For calculating UBTI tax and for getting forms prepared, always consult your CPA or tax advisor.

Investing in Offshore Investments

Can I invest in offshore investments provided that I’m compliant with the non personal use or the prohibited transaction requirements?

Titling of Assets in IRA LLC

How to title assets in IRA LLC?

When dealing with all assets owned by your IRA LLC, whether a bank account or title to real property, always use the LLC name.

Example: Name of your LLC is ABC Properties LLC

If your IRA LLC is purchasing real estate, the purchase agreement should list ABC Properties LLC as buyer. If your IRA LLC later sells this property, the purchase agreement should list ABC Properties LLC as seller. You, as manager of the LLC will sign the contracts. Your bank accounts and/or brokerage accounts should be in the name of ABC Properties LLC.

When supplying a Tax ID number for any related transactions (including the opening of a bank account), always supply the EIN (Employer Identification Number) assigned to your IRA LLC – NOT your social security number.

Managing Property Owned by IRA LLC

Can I manage property owned by my IRA LLC?

The answer is going to be vague as there are no clear cut guidelines when dealing with prohibited transactions. I have seen different views on this issue. Certainly if the individual is paid for his services this is probably a prohibited transaction. Even if the client is not paid – there is a concern that the individual is receiving indirect compensation because he is performing services that would otherwise have to be paid for. On the other hand, it can be argued if he is just performing minimal services — collection of rent, etc. — this should not raise to the level of a prohibited transaction. Unfortunately, you will not know this until the IRS/DOL walk in the door and try to find a problem. It depends on how conservative you wish to be but if you do decide to manage the property — you should not receive compensation for your services as a manager.

I own investment property inside of my IRA LLC. What I can and cannot do when it comes to managing of my property?

The easiest way to think of managing your account AND any property you buy is this: White collar activity is fine, Blue collar activity is prohibited.

So whether you’re managing your account, making transfers, consulting your accountant, writing checks, paying bills, you are fine … as long as you don’t reimburse yourself for any of these activities. You have become an unpaid consultant for your plan.

The same holds true for properties your IRA LLC owns. You can hire and negotiate with contractors, you can fire them when they don’t perform, etc. You can place ads in PennySaver and Craig’s List, but if you buy ads anywhere, the money must come from your IRA LLC. You can screen tenants, collect rents, and do evictions. (I would not recommend doing that, not because its restricted, but because it comes with a lot of headache.) Consequently, your IRA LLC can hire a property manager, and then you get to interact with them the same way you do your contractors.

You cannot paint the property personally, fix the plumbing, mow the lawn etc. (and any other repair or maintenance items). These are all Non-Cash Contributions to the plan and they are restricted.

Remember: White Collar activity – OK; Blue Collar activity – NOT OK!

Income from IRA LLC

Can I personally receive income from my IRA LLC?
No. This violates the prohibited transaction rules. The main purpose of these prohibited transaction rules is to prevent you from benefiting from your IRA without paying taxes. IRAs have special tax benefits that allow us to save and invest money for retirement. Because of this singularity in purpose, there are restrictions on what can be done with this tax-favored money before retiring and taking the money out in the form of a distribution.

Keep in mind that you are the first person on your list of disqualified persons. Although you are able to manage your IRA LLC and you decide how you would like to invest it, you cannot benefit yourself with any of these investments or their returns. All retirement account investments must be for the benefit of the retirement account.

Things you can do

IRAs can be used to make passive investments for the purpose of benefiting and growing the IRA. There are infinitely more investments you can make than there are investments you cannot make. Simply put, you can do anything that is not illegal.

Things you cannot do

Prohibited transactions. Examples include:

buying an asset with the IRA LLC from a disqualified person

selling an asset in the IRA LLC to a disqualified person

extending credit to a disqualified person

a disqualified person extending credit to the IRA, such as

You guaranteeing a loan made to your plan

Pay any disqualified person for work done on plan-owned assets, such as

You receiving income for managing real property in your IRA LLC

Paying your mother or son or daughter-in-law to mow the lawn on IRA LLC-owned property

Investing IRA LLC funds into your business (or the business of any other disqualified person)

Run a business owned by your plan

It is helpful to understand the reason behind prohibited transaction rules when you are making investments. Ask yourself, “Who do I intend to benefit with this investment?” If your motives aren’t clearly for the benefit of the retirement account, not only might you be making a bad investment for the account, but you also might be breaking the law. Steer clear of these prohibited transactions to enjoy the positive aspects of investing- the opportunities these accounts are so wonderful at opening up.

Managing Business Owned by IRA LLC

Can I Manage a Business Owned by My IRA LLC?

Prohibited Transactions

What is a Prohibited Transaction?

Using IRA LLC Funds to Partner on Investment

How to use IRA LLC funds to partner with myself on investment? Can I also partner with someone else’s IRA or 401k?

Your IRA LLC can always partner with other people individually or with other people’s IRAs. Under certain circumstances you personally may be able to partner with your 401k. However, the burden of proving that you received no impermissible benefit from your IRA’s participation in the investment will be on you if the IRS ever questions the transaction. The transaction still must be an arms-length transaction, and the investment remains subject to the same restrictions as if the entire investment were in your 401k. In general it is better to separate your 401k investments from your own investments.

If you co-invest with yourself, you cannot get a non-recourse loan. A non-recourse loan is only possible if the IRA is the only investor or if it invests with other, non-disqualified parties. Once you combine personal funds, leverage is out of the equation. This is cross-collateralization and it is prohibited.

One important rule to keep in mind is to be able to partner with your IRA you must have no NEED to do it. Meaning if you can do the deal without the IRA you can partner with it and if the IRA can do the deal without you then it can partner with you. So basically the main reason people want to partner with the IRA (to be able to use “all” your money to do a deal that you might not be able to otherwise) is an exclusion.

Obtaining a Credit Card

Can I get a credit card for my LLC to pay for the investment related expenses and earn rewards?

Technically the IRA LLC plan could have a credit card, but the problem is that no one will extend credit to the entity which does not have any credit history. If the bank offers a credit card for your IRA LLC, you personally will be required to sign the guarantee. Since you are considered to be a “Disqualified Person” for your IRA, you are not allowed to extend any credit to the plan. So the answer would be NO – you can’t have credit card with your IRA LLC. If you did so – this would constitute a “Prohibited Transaction” and your plan would be deemed disqualified.

Please be sure to review the Prohibited Transaction section to ensure that you have good understanding of it. As a fiduciary of the plan it is your responsibility to avoid any prohibited transactions.

What our Clients are Saying:

In my opinion, anyone that owns their own business should have a Solo 401K, and I would highly recommend Sense Financial – you will not be disappointed!

Ben D. – Spokane, WA

Sense Financial made the entire process extremely easy and they have been very responsive. I’ve recommended them to many people already.

Michael L. – Humble, TX

Dmitriy and his staff were consummate professionals. I rolled my Solo 401 (k) into a Self Directed Solo 401 (k). Dmitriy handled it smoothly and confidently…

Mindy Jensen – Longmont, CO
BiggerPockets Community Manager

Alternate investment options with your self-directed account:

Real Estate

Precious Metals

Private Business

Stocks & Bonds

Private Lending

Cryptocurrency

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IRA LLC FAQ: Answers to Common IRA LLC Questions