Making Entity Investments in an IRA

It is very important that you, as an investor, understand all of the specific legal considerations that must go into investing your self directed IRA into any entity. Entities include corporations, limited liability companies (LLC), partnerships, and trusts. Before we discuss these limitations, however, let’s first talk about some of the benefits of having a self directed IRA and making entity investments.
First of all, when you have an entity investment, the money in your IRA can be held under the entity’s name. This means that you can easily get money for foreclosures, auctions, or for paying various fees. The money will almost always come in a cashier’s check, making it acceptable to anyone and everyone. Secondly, many investments are simply easier to manage through an entity; all of the hard work is done for you! This can be especially beneficial when it comes to real estate or auction dealings. You can also qualify, in certain circumstances, for lower administration fees and increased asset protection.
This is not to say, however, that making an entity investment with an IRA is completely safe and effortless. You still have to act carefully and thoughtfully at all times. Make sure that you speak with your financial advisor or do the research yourself on tax implications, both locally and federally. Also make sure that you hire a qualified attorney who understands the rules imposed by the Internal Revenue Service (IRS). You must be sure as well to pay any formation fees or tax return fees using funds from the IRA. You will also need a fair market evaluation of the IRA’s entity interest done on a yearly basis.
There are other things you must be sure to get done correctly as well. Most of these will require help from a legal professional, which is why it is so important that you put a lot of time and effort into selecting the right representation. Together, you will review all of the agreements of the entity to be sure that the IRA can legally be the shareholder, member, and partner. Also make sure that no disqualified persons are receiving compensation from the company and that there are no transfer or buy sell restrictions in place. Watch out for additional capital calls and keep track of when you will be subject to required minimum distributions. When this happens, you will need to have enough money in the IRA to cover this amount.
Of course, this is not everything that you will need to know as you embark on the entity investment using your self directed IRA, but if you can follow these precautions, you’re off to a very promising start. It is those investors who are willing to work hard to make their entity investments as legally correct and detailed as possible who will see the best results. You can go as far as you want with your investment, so just make sure that you and your legal counsel take the time to do it right.

This entry was posted in Costa Rica and tagged . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *