Pitfalls of funding your IRA through your LLC

Common Pitfalls of Funding Your LLC Through Your IRA

In our, “What is a Checkbook IRA?” article, we talked about how a self-directed IRA holds ownership interest in the LLC.  While it is an excellent investment strategy for those with substantial business acumen, it may not be the right choice for every investor. Here are a few common pitfalls of funding your LLC with a Checkbook IRA.

Knowing When it Makes Sense to Fund a Checkbook IRA

There are several instances in which it wouldn’t make sense as an investment strategy. Only use a self-directed IRA to invest in an LLC if:

  • You’re looking to start a new business whereby you can purchase other investment entities,
  • You are an active, experienced investor who is interested in processing investments quickly on your own, and
  • You are interested in managing and protecting your IRA investments on your own.

Unlike other self-directed IRA investment options, funding your LLC through your IRA gives you a unique level of control. While this is excellent for experienced investors and those who are looking for a new challenge, it’s probably not the best idea for a brand new investor unless you have a financial background.

Opening a Checkbook IRA Without Experience, Time or Interest

If you don’t already have the time, interest, and experience in keeping financial records and budgets, then you will likely not enjoy or be successful at owning a Checkbook IRA. Many investors don’t mind paying the minimal costs associated with the benefits of owning an IRA. Custodian fees are a cost, but that cost covers the administrative and management overhead of managing your IRA.

There are alternatives to a Checkbook IRA that still offer the same investment opportunities. These include: real estate, tax liens, promissory notes, and precious metals. In these instances, an IRA custodian will charge a nominal fee when you buy and sell your investment. They’ll also charge an annual administration fee, which covers customer service and statement services, as well as investment holding fees, which covers the company’s risk in the investment.

Opening a Checkbook IRA for the Wrong Reasons

A Checkbook IRA is a business, and like any business, you should never use Checkbook IRA funds for personal use. This includes buying groceries, paying your mortgage payment, or using the funds for a family vacation.

You should also not use the account for assets, such as a personal rental property or vacation home. And finally, you should never deposit personal funds in the bank account for your Checkbook IRA. Any of these actions can carry serious financial and legal consequences.

Find Out if a Checkbook IRA is Right For You

Could a Checkbook IRA be the investment opportunity you’ve been waiting for? Schedule a FREE strategy session below with the team at The iPlanGroup to learn more, and find out today.

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