LLCs

Single member or multi-member

Tips

What you need to know about LLCs before you invest.

A Limited Liability Company (LLC) is a type of business entity registered with the state. “Limited liability” refers to the protection this type of entity offers—LLC owners (called ‘members’) are protected from personal liability for business debts and claims. In other words, personal money or possessions cannot be targeted, and LLC owners stand to lose only the money they’ve invested in the LLC itself.

Like a partnership or sole proprietorship, an LLC is also a “pass-through entity,” which means that the LLC’s income passes through the business and to the LLC member(s), which in this case is the Individual Retirement Account (IRA). As such, the LLC isn’t taxed.

An LLC offers the limited liability benefit of a corporation and the single level of taxation of a partnership.

Common reasons investors choose LLCs

It’s the simplest business entity to form and operate

Your personal assets and IRA assets are insulated from risk, since you can’t be sued for anything outside of the LLC

For real estate: property expenses can be managed through the LLC

Common risks when investing in LLCs

Cost: you must pay filing fees when forming your LLC and annual fees based on state requirements

Rules

The Internal Revenue Service (IRS) has certain rules to keep in mind when considering an investment in LLCs.

If an IRA is investing into an LLC, the account owners must be aware that the investments made in an LLC must adhere to the same rules regarding prohibited transactions and prohibited investment classes as investments made directly through a custodian.
An LLC for investing purposes must be a newly formed entity. You cannot invest with your self-directed IRA through an LLC you have created previously for another purpose. It is your responsibility to set up your LLC.
Since LLCs must be established and registered in a state, it is important to know the rules of establishing an LLC in your state. Each state may have different fees for registering or maintaining an LLC.
LLCs may incur unrelated business taxable income (UBTI). Tax owed on this income must be paid from cash held within the IRA holding the LLC and filed on IRS Form 990-T. If your LLC investment incurs UBTI, consult a competent tax professional to prepare a Form 990-T and contact Provident for instructions on paying any taxes your IRA may owe.

Effective January 1, 2024, you must file a Beneficial Owner Information (BOI) Report with the Financial Crimes Enforcement Network (FinCEN) for any IRA-owned LLC, as required under the Corporate Transparency Act. You must file this report before January 1, 2025 for any LLC existing before January 1, 2024. For any new LLCs created on or after January 1, 2024, timing requirements are listed here https://www.fincen.gov/news/news-releases/us-beneficial-ownership-information-registry-now-accepting-reports.

Provident Trust Group will not file this report on your behalf nor be responsible for collecting the information for the filing.

You can find guidance materials and additional information on the reporting requirements by visiting www.fincen.gov/boi.

Curious about your self-directed IRA options?

We can help

1. Open your self-directed IRA account and fund it

Register and log in to the client portal, then complete a self-directed IRA application online. Visit our Open an Account page for more details.

2. Complete our Direction of Investment Form

You can easily complete a digital version of this form through your portal, or you can email, fax, or mail us a completed Direction of Investment Form.

3. Send your supporting documentation

Along with your Direction of Investment form, you must provide the following:

-Copy of the Tax ID (EIN) confirmation from the IRS

-Articles of Organization

-Operating Agreement

-Subscription Agreement

4. Receive a confirmation

You will receive an email confirmation once your request has been processed and your funds have been scheduled to leave your account.

You are responsible for performing due diligence on your investment. Every investment has unique risks and any decision to invest should only be made after you conduct a thorough review of the investment and any parties related to the investment. Provident Trust Group is a passive, directed custodian and as such does not provide any type of investment advice or due diligence.