LLC 100% owned by an IRA? - Posted by Ron (MD)

Posted by William Bronchick on March 14, 2002 at 09:29:10:

The single member LLC is disregarded for federal income tax purposes, but whether an IRA can FORM an LLC for the purposes of a rental is a grey area. An IRA cannot “do business”, and forming an LLC could be considered running a business, subjecting it to taxation as such. This is a largely untested area. I would ask your administrator for an IRS reg or ruling on the issue.

As far as $2000 to set one up, that’s a joke! You can easily do it yourself for the filing fee, which is about $500 in IL.

LLC 100% owned by an IRA? - Posted by Ron (MD)

Posted by Ron (MD) on March 13, 2002 at 14:01:14:

This may be too specialized a question for this board, but I’ll try.

I have a self-directed IRA (Entrust). I’m planning on buying some rentals in the IRA. I want to avoid having to go to Entrust every time I need to pay a bill (e.g., utility bill, advertising bill, minor repair bill) because it will be cumbersome and expensive.

Entrust (Hugh Bromma) tells me I can establish a new LLC that is 100% owned by the IRA, with me as the unpaid President of the LLC. This would allow me to establish a bank account to receive rent checks and pay various bills. That eliminates the transaction expense and cumbersome-ness (?) of the IRA owning the rentals directly.

Two problems: One is the attorney suggested by Entrust wants $2,000-$3,000 to set up one LLC (!). Also, I think the use of an LLC within the IRA has a big negative impact on asset protection…I’m told that if someone gets hurt on a property owned by an IRA, they can sue, but can only attach that one asset (house). However, I’m guessing that if someone sues the IRA-owned LLC, they can attach any and all assets within the LLC. Ordinarily, you can get around this by setting up multiple LLCs and limiting the net worth in each one. That gets pretty expensive at $2,000-$3,000 a pop.

So, my questions are: Does it really take a high-priced Chicago lawyer to set up this type of LLC? And, am I right about the asset protection issue? Finally, is there a better way to simplify the transactions for rentals within the IRA?


Ron Guy