You are interested in creating what is commonly marketed as an IRA LLC. Of course, establishing a self-directed IRA custodian account must occur in order to actually create your IRA LLC. It is the IRA LLC which will give you “checkbook control” of your IRA funds. Of course, in establishing a self-directed IRA custodian account, one will need to create the IRA through an IRS-approved, FDIC-insured, IRA Custodian. If you are not familiar (which I am sure you are), all IRA assets must be held through the IRS-approved custodian
While every IRA custodian may have slightly different applications and accompanying account establishment forms, let’s review the basic steps you will in establishing a self-directed IRA custodian account. While fees associated with IRA custodians who permit the formation of IRA LLCs vary, the following fees will give you a general idea on the fees you may have for your IRA custodian account
- IRA Account Application — Every custodian will have an application form for you to declare your intent in opening the IRA account. This application will break down what type of IRA account you are establishing, and request general information such as the IRA account owner’s address, personal information, inclusive of social security number, driver’s license number, date of birth, etc.
- IRA Transfer Form — If you are wanting funds transferred from another IRA custodian, your newly-appointed IRA custodian can request those funds in “transfer.” When this occurs, it is considered as a “direct transfer” between the two custodians. I humbly believe that when, at all possible, an IRA account owner always have the funds transferred directly between the two custodians. If your funds are coming from another type of qualified plan (e.g., 401(k)), this will be a rollover and you will need to make the request for the rollover funds.
- IRA LLC Agreement — This is a form that explains to you, in general terms, IRS regulations pertaining to prohibited transactions and the need for you to comply with such regulations. In simple terms, this form is your confirmation that you are wanting your IRA to purchase 100% of the assets of the LLC (thus, the IRA LLC) and, as manager of that LLC, you do not hold the IRA custodian responsible for your compliance with IRS Prohibited Transaction regulations.
- Deposit Form — This is a form that is used if you are creating your plan with a new contribution to your IRA. This form is also used for making on-going, annual contributions to your IRA.
- Investment Authorization or Direction — Once funds are accepted by the IRA in transfer or rollover you, as the IRA LLC manager, will authorize the IRA custodian to release funds made payable to the LLC to fund the IRA LLC account. This type of form is necessary to authorize the custodian to transfer funds out of the IRA.
- Other Forms — As mentioned, every custodian is slightly different in what forms they require to establish your IRA. These forms, however, are typical forms that custodians use in funding and transferring funds to your IRA LLC.
Also, please keep in mind that the IRA custodian has the annual requirement to report the value of your IRA to the IRS each year. This is typically done for the IRA LLC through a Fair Market Valuation Form (FMV) form. The IRA custodian will send this form to the IRA LLC manager each year. The reporting of the IRA’s value that is reported is based on the veracity and accuracy of the information you provide each year. As such, it is important that you take this responsibility seriously and make a concerted effort to value the assets of the IRA LLC accurately.
As always, the information provided is intended to be educational in nature. It is not intended, nor should it be interpreted as, any form of tax, legal, financial or investment advice. You must always consult with your respective professional in all such matters.