There is a wide variety of events that may lead you to transfer your retirement accounts or retirement funds from one custodian to another – namely transaction fees or the service itself. There are also different ways of completing a transfer. One way is to transfer your assets directly without liquidation –known as an in-kind transfer.
If you already have a Self-Directed IRA (SDIRA) then you may also already have alternative assets, maybe even an IRA LLC. But first, what is even an IRA LLC? Soda, pop, cola, or Coke are common ways to describe the same category of carbonated beverages subject to your geographic region. While there may be more or less debate surrounding IRAs than the appropriate name for a Sprite, an IRA LLC has some of its own aliases.
What is a Self-Directed IRA LLC?
An IRA LLC is an LLC where your SDIRA is a member with responsibility for ownership and operation of the LLC. As mentioned above, these have been known by similar titles – Checkbook Control IRA and Single Member LLCs. These other names provide some specific insight into the function and benefits of the associated investments. However, there are some nuanced differences that are important to consider.
When establishing your LLC, your IRA will be a member titled with an example format of IRAR Trust FBO [Client Name, Account#]. Once your LLC is successfully established, a bank business checking account can be opened in the name of the LLC. You are then able to deposit funds from your IRA into that bank account for LLC investments. A common example of using checking account access is purchasing real estate at auction. Typically, auction sales require prompt payment, but if you need to submit paperwork (from your non-IRA LLC) for review and wait for processing, the time delay may not work for that purchase. Fewer forms are required to process transactions executed by your IRA LLC, further leaning into the idea of “self-direction.”
While you gain checkbook control over your IRA funds with an IRA LLC, your overall IRA account is still capable of holding additional alternative assets independently from that IRA LLC if you so choose. So, deeming your IRA only as a “Checkbook Control IRA” because you can write checks seems to inaccurately limit its capabilities to hold other alternative investments. Additionally, there may be more than one member of that IRA LLC so the “Single Member LLC” designation may not always be accurate either.
How to Transfer IRA LLCs to Another Custodian
Transferring assets in-kind requires an additional step compared to transferring cash – reregistering ownership of the asset(s) being transferred to the new custodian.
If you want to move your IRA LLC, you first need to open a self-directed IRA with a custodian. Then, you will complete a transfer form. At IRAR Trust, when we receive your Transfer Form we will submit the transfer request to your current custodian. Once your current custodian receives the transfer request, they will send us a formal authorization of change of ownership assigning the assets to IRAR Trust FBO [Client Name, Account#]. We then notify the asset providers of this change.
However, if your IRA is a member of the IRA LLC, who is the asset provider that is responsible for updating that information? As a member of the IRA LLC, it would be your responsibility to amend the operating agreement and articles of organization with the new member’s name (vesting/titling information). It’s important to provide confirmation that the member’s name was successfully updated to ensure that your custodian can continue to provide you with the best ongoing support.
LLC Manager & Prohibited Transactions
Prohibited transaction rules still apply to IRA LLC transactions and investments. As a member or manager of the LLC and simultaneous owner of your IRA, it is your responsibility to ensure that you are complying with all applicable laws and regulations since IRA LLC transactions are not typically processed through your custodian. More detailed information regarding prohibited transactions can be found here.
Disqualified Persons – a disqualified person is anyone the IRS has decided is not at an “arm’s length” from the IRA or, in this case, the IRA LLC. Along with your IRA, your IRA LLC cannot engage in any transactions with these individuals (outside of partnering on a new transaction) or you may jeopardize the tax-status of your IRA.
Prohibited Investment Types – there are a few specific types of investments that your IRA LLC is unable to hold (i.e., life insurance, collectables, and S-Corporations).
Additional freedom comes with additional responsibilities, and we are here to help. Set up a free consultation. Our team of experts are available to answer any questions you may have about the process.