IRA Third Party Administrators (TPA) have forms and things they must do to comply with IRS regulations however some TPA’s take this process to the extreme and consequently make life miserable for their clients. Lately one such company literally made recommendations to their clients as to what they should not invest in, even though the suggested investment complied with all IRS regulations. Even if this weren’t the case, TPA’s have always been a pain to deal with because you get asked for and have to fill out a form every time you want to transfer a little money, even for an earnest money deposit so you can do a deal which slows down the process and sometimes even kills the deal when waiting.
There’s an easy and legal way to fix this and I’ll disclose the steps below but before I do you must know I am not an attorney, I am not a legal expert on IRA’s, what you’ll see is only my opinion based on 35 years’ experience as a Real Estate Investor and over 15 years of teaching others how to use their IRA and grow wealthy tax free. I have however discussed this process with owners and people at a higher level at a couple TPA’s and they see no issue using it. Here we go step by step.
Step 1- First you must open a Roth IRA. If you don’t have one open, it’s only a matter of your choice TPA’s websites and fill out the form and send them your initial contribution. Most will do it for less than $100.00. Currently I use QuestIRA.com but any third party administrator that is truly a self-directed company will work. You can have a Roth IRA open the same day you decide you want one.
Step 2- Go on your state’s website and fill in a form to establish an LLC. This LLC will be 100% owned by your IRA. In order to do this you’ll need a name(s) for your LLC, an officer (Manager), and an Owner. The Owner is your IRA and should be listed as “IRA, FBO Your Name, IRA #.” An example would be “Quest IRA, FBO Ron LeGrand, IRA #123456.” That would be the Owner of your IRA 100% member. You’ll also need to order an FEIN for your LLC through the IRS.
However, your Manager cannot be you or anyone in your linear decent. IRS rules clearly state you cannot get compensated in any way for the activities of your IRA. You cannot directly control the cash in your IRA as you would as the Manager of the company who owns your IRA. My suggestion is to get a Manager that you know such as an employee, sibling, or anyone you wish except your linear decent to be your Manager.
So, you will need to name the Manager and the Owner at the time you’re forming the corporation as well as 2 or 3 potential names for your company in case one is taken. You may not use your credit card to pay the fees. If you use your credit card, it means you’re paying an expense of your IRA which is a prohibited action. I suggest you use a credit card of a friend or nonlinear relative and pay them back at the time your LLC is funded by your IRA.
Simultaneously, you’ll need to an IRA Operating Agreement and complete it naming your IRA as 100% Owner and the Manager you chose. You’ll need this Operating agreement, an EIN number for your LLC and the check from your IRA to go to the bank and open a bank account.
So, to recap this step… Go to the State, Fill out the LLC form, name your Manager, and name your IRA as the Owner, prepare Operating Agreement which you supply copy of to your TPA, Obtain FEIN from the IRS. Once all of these are received and your bank account opened you can go to the next step.
Step 3- Go to your TPA’s website and complete a Private Entity Direction of Investment (DOI) form asking for your IRA to send an amount of money (at least $1,000.00) to you made out to your LLC. Make sure the check is made out to your LLC and not to you.
On the DOI form, your request for funds is to form a Private Entity. You will need to provide your Custodian with a copy of your Operating Agreement reflecting your IRA as 100% owner of the LLC.
Step 4- Conduct Business
Once that is done, now you are free to direct your Manager to write checks for whatever you need for the activities of your IRA. If you want an earnest money deposit, now it comes out of your LLC. If you IRA owns a house, that’s collecting rent it now goes into your LLC.
Your LLC becomes a property manager for any property you currently have in your IRA or any you buy for your IRA. Your LLC makes the payments. Your LLC collects rents. Your LLC pays any expenses along the way except you. Remember, you cannot collect a dime from that LLC.
Those are the steps. All your TPA needs is a K-1 which your CPA will prepare the following year. The TPA does not need to know the activities of your LLC nor a statement showing the money received or spent. Be very careful this LLC doesn’t borrow from, lend to, or take money from any other entities that are controlled by you or your linear decent.
I suggest you use a land trust (grantor revocable trust) to take title to IRA properties. Make sure your new LLC is the beneficiary which is owned by your IRA.
Very helpful information – as always, thanks, Ron!!
This helps, I have been wanting to open an IRA just needed a little more info and this helps. Thanks Ron…
Hi, Ron. I understand that when filing for the LLC, we indicate IRA as the “owner” and we designate the “manager”. However, on the filing, do we include our individual self as a “member”?
HI Tanya, did we get the answer on this question?–great question?
I believe this is the answer: “The Owner is your IRA and should be listed as “IRA, FBO Your Name, IRA #.” An example would be “Quest IRA, FBO Ron LeGrand, IRA #123456.” ” I took this out of Ron’s article. Step 2
The owner (the IRA) is the sole member.
If we make $100,000 in the first year….does the money stay in the LLC bank account at the end of the year….or do we write a check to my IRA Custodian?
To open a bank account for my LLC owned by my IRA (step 4), do I need to have its manager present him/herself to the bank at the time of the account opening?
Can you have a 50/50 ownership of the LLC? Your IRA has 50 percent and an investor/manager own 50 percent.
Better yet a 90/10 spilt…with the investor/manager get a 10 percent ownership each year for four years. After 4 years it would be a 50/50 ownership of the LLC.
Investor/manager puts in …say 50,000 to 100,000 dollars in the LLC giving the LLC cash.
Appreciate the clarity in this article
In step 2 you say:
“That would be the Owner of your IRA 100% member.”
May I clarify this please to read:
“That account is listed as 100% Owner of your LLC. When you establish the LLC, you list that account as the only member. Do NOT list your manager as a member of your LLC. You establish your Manager by a separate document called “LLC Operating Agreement” which you find in the Resources tab of the Gold Club site under Forms.
Nancy James
Hi Ms. Nancy James, it seems that you understand this process more than most, could you help with more detail, larvell7@gmail.com, I would appreciate it! thanks!
Nancy,
If we make $100,000 in the first year….does the money stay in the LLC bank account at the end of the year….or do we write a check to my IRA Custodian?
Very simple concise explanation of how the process works.
I just set up my Roth IRA with Quest and I have set up my LLC with the secretary of state and have filed in the operating agreement (manager managed IRA agreement that I got from Ron when I paid for his 3 hour class on Asset protection). When I filed the Secretary of State documents it has my sister as the registered agent and the manager and it doesn’t show my IRA at all but it does show on my operating agreement.
The part that I’m not concerned about is filing the FEIN with the IRS. Do I put my sisters Social as the responsible party? Or do I put Quests EIN number (FBO my IRA?). I don’t want the taxes from the IRS to go on her social but for my IRA of course.
I just asked a Tax Attorney and this was his response.
I think there are some IRA custodian requirements that we need to look at. Your sister can certainly manage the LLC, and the LLC will obtain its own EIN. You sister can be listed as the responsible party on the EIN application for purpose of issuing the LLC it’s own EIN, but she won’t be liable for any income or tax to the LLC.
Any income to the LLC will pass through as a disregarded entity to the IRA. The IRA will report any taxable income (and there may not be any…it depends). This is where the custodian question comes in. I believe a “qualified” corporate trustee has to be the custodian of the IRA. This is where someone like Equity Trust comes in. Some institutions won’t take part in this type of structure so you have to make sure before you pick a custodian.
You are correct that the IRA reports the tax not your sister. She is just acting as the responsible party on the EIN application because she is the Manager or Officer with authority.
I have set everything up!
My IRA owns the LLC and My sister is Managing the LLC and the Bank Account and I have no Access. Now I’m about to buy a property to put into the IRA owned LLC. I’m going to purchase it in a Trust and put the LLC as the Beneficiary but I was wondering can I use my sister to be the Trustee if she is also managing the LLC because my IRA is the owner so she could most likely manage the LLC and bank account and be the Trustee, Right?
This is helpful to me in understanding this setup. Thanks!
If we make $100,000 in the first year….does the money stay in the LLC bank account at the end of the year….or do we write a check to my IRA Custodian, Equity Trust?
I currently have a self directed with Equity Trust funded with tax deferred rolled over monies from another retirement acct. Equity Trust does not do check books. Is this strategy only to be used for Roth type IRAs that are initially funded with after taxed dollars or can I roll my equity trust (tax deferred $$s) over to another TPA?
Very helpful! Thanks, Ron.
Ron’s explination plus all the reponses are enough to get anyone’s juices going. This plus professional help will equal a perfect system. I’m still going to the IRA class.
I agree with Mark!
Ron can I have another account that can distributes fund to me for my own expenses because I have to subvive do I?.If I don’t have acces to that precious account how I leave and cover my overhead expenses?
Thanks Ron! See you at the Summit!
Hello Ron, I’m in the process of forming an LLC. Do you have guidlines or recommendations on words to use in the LLC’s name or perhaps words to avoid? Thanks.
Very helpful
who wants to work with me on a few deals
Very helpful
Thanks Ron. I had heard that there are a lot of things like this that can be set up, but you explain it in a way that makes it easy for a novice like me can understand.
thanks again
Very informative.
Well done Ron.Thank you
I am more confused now than ever..How do u get your money to pay your living expenses if I cant use any of the money. And my manager that would be a friend or whoever has to write checks everytime I need one.
Thanks for this info.
Quest Trust or Equity Trust, which one is better?
Hi Randy. Did you get any help with your question yet?
What about assest protection and charging order protection?
I hear LLCs opened in Nevada, texas or Wyoming can provide that extra layer of protection?
This is great as I will use this to guide me as I just opened an account with Quest
I am the administrator of my 401k through an operating agreement.
It takes under $2,000 to set up if you have a corporation or entity LLC etc.
Jordan is a great guy I would be happy to share his information if someone was interested.
We have used it to purchase rental property, flip homes, and purchase discounted mortgages.
Prior to working with Jordan we paid for an administrator and the average cost to purchase rehab and sell was running about $2,500 in fees per transaction.
Now I pay an annual fee $250, and minimum bank charges. The only hassle the bank that I work with won’t provide a credit card or ATM card tied to the account.
There is a one page annual form that is filed with the IRS and my book keeper completes and sends to the IRS. It is the only way to go in my opinion. I believe I switched 5 years ago.
Jim Q, kindly share information on “Jordan”. Thank you.
Can you share Jordan’s information?
So if I am reading this correctly, although my business is already set up as an LLC, I still have to set up a seperate LLC, and new bank account in my IRA with with a non linear relative as the manager to handle all transactions.
Great Info Ron, I have a pension that I need to convert to an IRA then transition into a Roth IRA.
This is so clear and descriptive step by step direction. Thanks Ron.
Thanks so much Ron. This will get me on the way I need to go.
Great info. I understand most of it. Still a little confusing/scary. I definitely need to get to business management bootcamp
Better and more complete than other explanations I’ve seen/heard. Too bad this page isn’t monitored or worked on enough by those who can expertly reply to the many unanswered questions.
so true. How do we get experts to answer all of our questions?
Do you need a separate LLC for each property.
What if you have an LLC already, do you need more than one, if you are wholesaling properties.
Great stuff Ron. Thanks for being so helpful to everyone.
Thank you for this outlay of instructions. Good example as well. This will help as we structure our One.k and Roth IRA accounts.
Thank you again Ron for the support on this. The information you provided really helped open my eyes on better understanding the processes required to properly create an LLC for my SD IRA, while avoiding some of this potential traps.
This is so helpful, will follow instructions for greatest protection.
Thanks Ron.
Hi, my name is Jon McKa. I am a Gold Club member. I will be setting up my IRA, LLC, soon. I do not understand clearly how will I be compensated from my Real Estate investing and who has to write checks for payments, expenses, etc…?? Waiting for an answer.
Good morning! Your question has been answered in the following episode of ‘Ask Ron’.
https://www.ronsgoldclub.com/resources/askron-best-of/2021-08-13-ask-ron
I’m continually looking for an easy way of running my self-directed after-tax IRA with Equity Trust. They aren’t allowed to give directions on the finer points of operating the after-tax self-directed IRA. Your description puts me in there. This extra effort to acquire the properties via my IRA makes a huge difference to save money.
Thanks Ron … we seem to create our own problems. If, we would just allow others to do what they do best we can avoid a lot of problems. Simply follow the suggestions of those who have the experience can save us from ourselves.
Thank-you!
I like the step by step process. It is all still Greek at the moment, however you have to begin the learning curve somewhere! We are close to our first deals so this will help us structure our estate properly.
Equity Trust does not do checks
Do we need a bank account for the LLC or only a Roth IRA account?
Good morning! Your question has been answered in the following episode of ‘Ask Ron’.
https://www.ronsgoldclub.com/resources/articles-and-reports/gold-club-weekly-report/2022-04-08-ask-ron
D. Lester
August 27, 2022
Time: 6:37 p.m.
I have an IRA, I have an LLC. Now I want to put this property on IRA Land Trust. I will like to know what I do next.
Good morning! Your question has been answered in the following episode of ‘Ask Ron’.
https://www.ronsgoldclub.com/resources/articles-and-reports/gold-club-weekly-report/2022-09-02-ask-ron
I love the Wrap Around Mprtgfage if it would help people with their mortgages. I haven’t seen 1 person except this yet.
Thank you for the steps & overview, very direct & appreciated!
Can I setup the Roth IRA for my benefit only and have my wife be the manager?