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Why Invest in Real Estate in an LLC with Your IRA?

Diversifying your retirement account with alternative investments such as real estate presents the opportunity to build wealth and prepare for retirement. However, real estate investments within an LLC offer some advantages to buying directly in your IRA. An LLC can have tax benefits and increased control and flexibility, which appeals to investors. Overall, a real estate IRA LLC can be an excellent choice for certain investors who need more control of their real estate investment, want to pay less administrative fees, or would like to purchase multiple assets.  

What is an LLC (Limited Liability Company)?

A Limited Liability Company - or LLC - is a business entity that protects the owner(s) from personal responsibility for its debts or liabilities. In an LLC, the owner(s) receive similar protections to those in a corporation, meaning there is a degree of separation between the owner(s), the LLC, and the investments. There are two types of LLCs: single-member and multi-member. 

Single-member LLCs have only one member or owner. The LLC is formally recognized as a business entity in the state where it is formed and is the most common entity for checkbook IRAs. Multi-member LLCs are permitted to have any number of members. Members can be individuals, corporations, or other LLCs. 

What is a Checkbook IRA?

An LLC is a requirement for any IRA to be considered a “Checkbook IRA.” This simply means that a business bank account has been established where all funds will be deposited for the LLC. Having direct access to your bank account is where the name checkbook comes from; it is also sometimes referred to as having checkbook control of your IRA. 

How Does a Checkbook IRA Work?

A checkbook IRA has additional rules from the regular IRS rules. For example, generally, the IRA holder or lineal descendants cannot be the managing member of the corporation. However, the IRS has allowances for checkbook-controlled LLCs. This means the IRA must be the sole member of the LLC, while either the IRA holder or a third party can be the manager.

With a checkbook IRA, the IRA owner is able to have control over their transactions and properties in the LLC. Without an LLC, Midland must facilitate transactions on behalf of the IRA owner at their direction. However, now with the IRA listed as the sole member of the LLC and the IRA owner becoming the manager, they have direct control over their account to complete transactions without Midland’s assistance. 

Benefits of a Checkbook IRA

Checkbook IRAs offer levels of freedom that investing directly through your IRA does not. 

More Control and Flexibility

Investing through an LLC gives the IRA owner more administrative control over their investments. After establishing the LLC, they’ll be able to pay their own bills relating to the asset, such as repairs, as well as deposit any rental payments directly to the LLC bank account. When doing any construction, the manager can pay for expenses and write checks on their own, rather than submitting a bill payment request through Midland. 

Quick Access to Funds

One of the most significant benefits of a checkbook IRA is the ease of access to funds in the LLC bank account. Because the funds are held in the LLC’s bank account, you can pull them directly from the bank instead of going through your custodian. This also means account owners don’t have to go through the account administrator for funds to buy and sell properties; they can skip that and buy with funds from their LLC bank account. 

Cost Effective with Multiple Assets

LLCs are beneficial when you’re planning on buying multiple properties. When purchasing property in an IRA, many custodians typically charge a fee per asset to administer the asset. If there are three or four properties in the account, this can add up to a hefty charge. Investing with an LLC places all the properties under the LLC, meaning you’d only be charged for one asset instead of multiple, therefore saving you money.

Setting Up a Checkbook Control LLC

Once deciding that a Checkbook IRA is the best choice for you, you must form an LLC. It's a relatively straightforward process that can be broken down into six steps. 

Step 1: Name Your LLC

Each state has different LLC naming requirements, so make sure you check that the name is available and permitted before registering. 

Step 2: Choose Your Registered Agent

Every LLC must have a registered agent to accept documents and notices on the LLC’s behalf. The account owner can be the registered agent, but oftentimes it is easier to appoint someone else - like Midland - to be the registered agent on your behalf. 

Step 3: Decide on Member-Managed or Manager-Managed

This step can be ignored when forming an LLC for IRA investing because the LLC must be manager-managed in order to be used.

Step 4: File Articles of Organization or a Certificate of Formation 

Articles of Organization establish a few critical pieces of information about the LLC for formation, such as the management structure, the registered agent, and the business address. 

Step 5: Apply for EIN 

An EIN is like a social security number for the LLC. All multi-member LLCs and all single-member LLCs that want to open a bank account, which is required in order to use the LLC for investing with your IRA, require an EIN. 

Step 6: Get an Operating Agreement 

Operating agreements detail how the LLC will operate and function. They can contain information such as membership percentages in multi-member LLCs or set up a voting system, along with standard operating provisions.

BONUS - Step 7: Open a Bank Account 

The final step after the LLC has been formed but before investing is opening a bank account to give the LLC that checkbook control. The above steps must be completed first before opening the bank account. Midland can help streamline your LLC banking process. 

You can find an in-depth explanation of how to set up an LLC with our subsidiary, Midland Forms. 

Investing in Real Estate in an LLC with Your IRA 

Now that the LLC has been established, it’s time to invest. Buying real estate in an LLC offers the ability to purchase rental properties, land, and other investment properties with more flexibility. Now that your LLC is set up, the manager can sign all documents for the LLC property purchase. The IRA owner has control and will work with the title company through the closing process. 

Please be sure to speak to your attorney or tax advisor about whether an LLC is right for you. 


Midland Trust specializes in real estate IRAs and has years of experience to help you get started. Our subsidiary, Midland Forms, can help you start your LLC today and answer all your LLC-related questions. We offer an easy set-up process and would love to help you get started.

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