How It Works

Roth IRA LLC

An IRA LLC can be set up in both a Traditional and Roth version. Let’s take a quick look at the difference between these two platforms and then we’ll dive into the specifics of a Roth IRA LLC.

What is a Roth IRA LLC?

An IRA is a specialized investment account that encourages workers to save by offering a tax break. This tax break can come in one of two forms:

  1. Make a contribution to your retirement account and push off paying taxes on that contribution until you make a distribution. This setup is known as a Traditional IRA.
  2. Pay taxes right now and then use the post-tax funds to make a contribution to your retirement account. Then, even as the funds grow, you never have to pay taxes again. This is known as a Roth IRA.

A Roth IRA LLC adds the power of a specialized LLC to the Roth account. By establishing a dedicated LLC for your Roth IRA, you free yourself from a lot of transactional delays and fees. The LLC element allows you to open a checking account at the bank of your choice and use that checkbook to perform all of the IRA’s transactions.

The Takeaways

  • A Roth IRA LLC allows for easy investment in alternative assets (like real estate) using post-tax dollars.
  • The advantage of a Roth IRA LLC over a standard Self Directed Roth IRA is the fact that you can make transactions straight without going through a Custodian.
  • Setting up a Roth IRA LLC includes opening a self-directed account, establishing an LLC, and opening a checking account for the LLC.

Is a Roth IRA LLC considered a Self-Directed IRA?

Yes. With a Roth IRA LLC, you can use the checkbook to invest in almost any asset. One of the more popular asset options is real estate, but investors really span the spectrum. You can find investments in gold, cryptocurrency, startups, and private placements. The Roth IRA LLC also allows for investment in standard retirement assets like mutual funds.

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What is the difference between a standard Self-Directed Roth IRA and a Roth IRA LLC?

Both of these platforms give an investor the ability to purchase alternative assets. The difference between them is in how the transactions are performed. In a standard Self-Directed Roth IRA, all the transactions go through the Custodian. This means that every purchase, sale, and act of maintenance requires a request and a form with the Custodian. In the Roth IRA LLC, the account holder is able to perform all transactions independently. Any asset they purchase with the dedicated checkbook automatically becomes an IRA asset. No further paperwork is necessary. The same is true for maintenance transactions. The Roth IRA LLC can skip the middle-man request and instead just pay for the maintenance straight.

What are the unique regulations for a Roth IRA LCC?

Although a Roth IRA LLC is an IRS-approved retirement plan, there are some significant differences between a Roth and a Traditional account.

  • Unlike a Traditional IRA, contributions to a Roth IRA LLC are not deductible. (Instead, the tax savings come at the time of distribution.)
  • In a Roth IRA LLC, account holders can continue to make regular contributions even after 70 ½ years of age.
  • In a Traditional Self-Directed IRA, RMDs (Required Minimum Distributions) are required beginning at 72 years of age. A Roth IRA LLC has no rule that mandates a RMD. The account holder may keep the funds within the account as long as they desire.
  • The contribution limit for a Roth IRA LLC in 2021 is $6,000. If the account holder is 50 or older, then the limit is elevated to $7,000.

What is the process for setting up a Roth IRA LLC?

  1. Application – This is a simple one-page application for setting up an IRA LLC. On this application, you’ll check that this is for a Roth IRA LLC.
  2. Welcome Package – After Broad receives the application, you will be sent a welcome package with all the requisite forms and explicit instructions as to what to do next.
    Roth IRA LLC Setup – Broad establishes a Roth IRA LLC for your account.
  3. Custodian Setup – You can start a new account at the Custodian of your choice. In addition to the account setup itself, you will also instruct the Custodian as to the current location of your retirement funds, the amount that you wish to rollover, and whether or not you would like to expedite the process. (An expedited process is typically requested when a specific asset has an investment window and you have to move quickly.)
  4. Checking Account – Once the Roth IRA LLC is set up, you will receive a binder that can be used to open a checking account at the bank of your choice.
  5. Funding – The Custodian transfers your retirement funds into the checking account of your Roth IRA LLC. You are now ready to begin investing.

Can I convert a Traditional Self-Directed IRA into a Roth IRA LLC?

Yes. There are three main routes via which a Traditional IRA can be converted into a Roth IRA LLC.

  1. Rollover – This happens when you close out a Traditional IRA and then roll over the funds into a Self-Directed Roth. From the time the first account is closed out, you have 60 days to place the funds in another IRA-approved account. In the case of a Roth IRA LLC, the funds would first be deposited by the Custodian holding the Roth account, and then they would be sent to the LLC itself.
  2. Trustee-to-Trustee Transfer – A trustee-to-trustee transfer takes place when the account holder does not want to close the original account but would still like to transfer some of the funds into a new Roth account. Often this is accomplished by the original institution cutting a check in the amount requested.
  3. Same Trustee Transfer – If you are already a member of a Self-Directed IRA, you can have the Custodian open an additional Roth account and transfer the desired funds.

Important note: When you convert a Traditional IRA into a Roth IRA LLC, the tax bill on the Traditional IRA immediately comes due. (From that point on, however, it will grow without tax liability.) Make sure that you have the funds available to be able to pay the taxes. The conversion from Traditional to Roth will be reported on IRS Form 8606.

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