Written by Daniel Ortega, Head of Retail Sales, Vantage
By now, hopefully you know your investment portfolio should be diversified. And if you’ve been reading the work put out by Vantage and other advocates of alternative investing, you know that a Self- Directed IRA is the best way to diversify beyond the stock market.
With housing prices increasing throughout the country many investors are looking outside their current markets, even outside the country for investment opportunities. The best part, whether you’re investing out of state or out of the country all of these opportunities can be funded by your IRA dollars.
The question, then, is what is the easiest and safest way to make these purchases?
That is where the IRA LLC comes into play. An IRA LLC is the ultimate diversification strategy. With this structure you can hold any type of real estate you could imagine, all while mitigating the transacting rigmarole usually attached to direct IRA investments. You live in Phoenix, but want to buy a property in Colorado? Great! You want to a buy a property in Mexico? Great! Another advantage is if you don’t have any idea of what you want to invest in, or an investment hasn’t come available, with this structure you can place your funds directly in the traditional stock market and liquidate required capital as you need it without any custodian-to-custodian interaction.
Benefits: With an IRA LLC, there are number of benefits that make this an easy way for you to invest your IRA dollars. For starters, you can set up a business banking account with your LLC as the business, with the funds coming directly from your Self- Directed IRA. Then, when you’re ready to spend (maybe that property in Mexico has become available), you can transact directly from your business banking account.
This can also come in handy when avoiding transaction costs from your Self-Directed IRA. In many cases, the cost of transacting with a business banking account is cheaper than the cost of conducting similar transactions directly through your Self- Directed IRA. You also have the benefits of some additional legal protections of your assets as long as you maintain independent accounts.
Challenges: With this freedom comes responsibility. Not having to facilitate every transaction through a custodian is great, but that can make it difficult to avoid the pitfalls often overlooked when managing the IRA LLC by yourself.
Also, not having a clear understanding of the rules and regulations of a Self-Directed IRA can put you, your IRA, and IRA LLC at risk. An IRA-owned LLC is also very different than the traditional LLC that you are likely familiar with. It is not recommended you try to create this LLC on your own, as there is specific language to meet all IRS rules and regulations.
This is not to scare you, but rather, to educate you that this is a great tool if used appropriately.
Here at Vantage, we specialize in Self- Directed IRAs and are familiar with the mechanics of an IRA LLC. We have resources available to you that can assist with establishing an LLC and answer any questions you might have about the structure. If you’re interested in learning how an IRA LLC can help take your IRA to the next level, please contact our offices or check out our Knowledge Center.