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New To Self-Directed IRAs

Steps for Establishing and Funding A Self-Directed IRA LLC

What is a Self-directed IRA?

A Self-directed IRA is just like a traditional IRA except for one important difference. What makes it unique is the range of investment options it allows.

Most IRA custodians only allow approved stocks, bonds, mutual funds and CDs. A truly self-directed IRA custodian, allows those types of investments in addition to real estate, notes, private placements, tax lien certificates, precious metals, foreign currency, ownership and operation of private businesses and much more.

A traditional IRA can easily convert to a Self-Directed IRA by transferring funds from the traditional IRA custodian to a self-directed IRA custodian. Or an employee who has a profit-sharing, 403b, or pension plan can transfer the funds from his or her plan to a self-directed IRA custodian

Benefits of a Self-directed IRA

In addition to the tremendous IRA benefits (tax-free profits, tax deductions, asset protection and estate planning), you are able to invest tax-free in investments that can be more stable and provide a better rate of return than stocks and bonds. Thus you can invest in real estate or a private business among the many types of investments.

What Role Does a Limited Liability Company Serve for a Self-Directed IRA?

A Limited Liability Company (“LLC”) gives the investor “checkbook control” over investment decisions and purchases. Without a LLC the investor must go through the self-directed IRA custodian for prior approval and authorization to make investment purchases and decisions. With a LLC the investor eliminates the cost, time, and need for authorization when making investment decisions and purchases. Checkbook control is the term used when the owner of the self-directed IRA has complete control over the funds in the IRA and all decision-making. You do not need to establish a LLC to get the benefits of a self-directed IRA. , but most owners of Self-directed IRAs use them so that the owners do not have go through the IRA custodian to make investment decisions (see benefits of a LLC below).

How Does It Work?

In order to obtain “checkbook control,” you must first establish an LLC that is owned by your IRA. Once you establish this new LLC, a business checking account will be set up in its name. You then transfer funds from your Self-directed IRA to the bank account of the LLC. Once the funds are in the LLC, you have complete control over the investments made and the management of the investments. You will be given a checkbook that is directly linked to that LLC account. You will then be in control of that checkbook, therefore gaining “checkbook control” over your self-directed IRA funds. You must also have a LLC Operating Agreement drafted.

Advantages of Using a Self-directed IRA LLC

Easier Control of Your Investments

  • When you identify an investment that you want to purchase, you can just write a check or wire the funds. You don’t have to fill out paperwork, rely on your administrator to fund a purchase, or wait for someone else to write a check—you can take care of it yourself. This can be particularly helpful with investments that have time restraints, such as auctioned items to close an immediate purchase of real estate.

Administrative Costs

  • Checkbook control has the ability to help you avoid the administrative and transaction fees that are typically associated with a self-directed IRA. Without a LLC your investments are held by your IRA and the custodian will charge you a fee for each asset held and for each transaction you make. With a self-directed IRA LLC the IRA only owns one asset –the LLC. Thus you are only charged a fee for holding the LLC and not for each investment held by the LLC.

Using an LLC in your Self-Directed IRA:

  • Your IRA LLC is a legal entity that can purchase assets outright, allowing you the freedom to direct your retirement funds. When you use an LLC in your IRA, you have direct access to your IRA funds, which makes this a popular strategy among real estate investors, who often need quick access to cash for maintenance and repairs. With a Self-directed IRA LLC you will never have to seek the consent of a custodian to make an investment or spend funds.

Steps for Establishing and Funding A Self-Directed IRA LLC

There are only 4 steps to establishing your Self-directed IRA LLC

  1. If you have not already done so, create an account with a self-directed IRA custodian and transfer funds from an existing traditional IRA or employee plan such as a profit-sharing plan. The Self-directed IRA can be a traditional IRA or a Roth IRA.
  2. Establish the LLC and related documents.
    • Form the LLC. The LLC is formed by filing Articles of Organization with the state in which the LLC is to be operated. The LLC will be owned by your Self-directed IRA..
    • Draft the Operating Agreement. This is a necessary and critical document. This document governs the operation of the LLC and is generally required by the IRA custodian and by most banks to open a LLC bank account. This document should be drafted to account for the specific rules that apply to IRAs and be specific to the requirements of each state. Obtain a tax identification number for the LLC (referred to as an EIN). This is required to open a bank account and for filing the LLC tax returns.
  3. Open a bank account. All you need are the Articles of Organization, the Operating Agreement, and the EIN of the LLC.
  4. Transfer funds from your Self-directed IRA to the LLC bank account.


With a Self-directed IRA LLC with “Checkbook Control”, you, as manager of the IRA LLC, can act quickly on a great investment opportunity. With a Self-directed IRA LLC, when you find an investment that you want to make with your IRA funds, simply write a check or wire the funds straight from your LLC bank account to make the investment. The Self-directed IRA LLC allows you to eliminate the delays associated with an IRA custodian, enabling you to act quickly when the right investment opportunity presents itself with lower costs charged by the IRA custodian.