Prohibited Transaction Consequences

Question:  What are the consequences of participating in a prohibited transaction?

A disqualified person who takes part in a prohibited transaction must correct the transaction and must pay an excise tax based on the amount involved in the transaction. The initial tax on a prohibited transaction is 15% of the amount involved for each year (or part of a year) in the taxable period. If the transaction is not corrected within the taxable period, an additional tax of 100% of the amount involved is imposed. Both taxes are payable by any disqualified person who participated in the transaction (other than a fiduciary acting only as such). If more than one person takes part in the transaction, each person can be jointly and severally liable for the entire tax.

The amount involved in a prohibited transaction is the greater of the following amounts:

  • the money and fair market value of any property given; and
  • the money and fair market value of any property received.

If services are performed, the amount involved is any excess compensation given or received.

The taxable period starts on the transaction date and ends on the earliest of the following days:

  • the day the IRS mails […]
Prohibited Transaction Consequences2018-05-13T13:58:52-07:00

IRA Owners’ Guaranties of Corporate Debt Were Prohibited Transactions

In May of 2013, the U.S. Tax Court ruled that two IRAs engaged in prohibited transactions under Internal Revenue Code Section 4975(c)(1)(B) and were disqualified because the IRA owners guaranteed a debt of a corporation owned by the two IRAs.  See Peek vs. Commissioner, 140 T.C. No. 12, (2013).  Why did the IRA owners guaranty the debt of the corporation owned by their IRAs?  The rule against IRA owners guarantying loans to the LLC or corporation owned by the IRA is well know, at least among advisers who understand IRA LLCs.

The taxpayers in Peek apparently did everything wrong that they possibly could have done.  Even if the IRA owners had not guaranteed the corporation’s debt the IRS could have disqualified the two IRAs for several other prohibited transactions.  The Tax Court said:

“Because we hold that the loan guaranties were prohibited transactions, we need not and do not reach the additional questions of whether prohibited transactions occurred (i) when FP Company made payments of wages to Mr. Fleck and Mr. Peek (which the IRS contends were prohibited transactions under section4975(c)(1)(D)), or (ii) when FP Company made payments of rent to […]

IRA Owners’ Guaranties of Corporate Debt Were Prohibited Transactions2017-09-10T15:27:36-07:00

Information About Forming & Operating Self-directed IRA Limited Liability Companies

If you want to learn about legal issues related to forming and operating a limited liability company that has one or more members that is an IRA or a retirement plan, this is the place.  My name is Richard Keyt.  I am an Arizona limited liability company attorney who has formed Arizona LLCs, including many LLCs that have an IRA or retirement plan as a member.

Throughout this IRA LLC Law website, the term “IRA LLC” means a limited liability company formed under the laws of any state in the United States of which one or more members is a a traditional IRA, a Roth IRA, a 401(k), a profit sharing plan, a money purchase pension plan, a defined benefit pension plan or certain other ERISA retirement plans allowed to make self-directed investments.

I created this IRA LLC Law blog because:

  1. I want to inform and educate people who are considering making a self-directed investment through an LLC about the important legal issues that arise whenever they use IRA or retirement funds to buy assets or own and operate a business through a limited liability company.
  2. Nobody should make […]
Information About Forming & Operating Self-directed IRA Limited Liability Companies2019-02-13T21:41:12-07:00

How to Invest Self Directed IRA Funds in a Limited Liability Company & Make Nontraditional Investments

Question 1:  Can I form a limited liability company in which my IRA is a member and use all or a portion of my IRA funds to make self directed investments through the LLC in various assets, including, but not limited to, real estate?

Answer:  Yes, but there are some types of assets that cannot be acquired.

Question 2:  Does it take a ton of money and a rocket scientist to form an LLC owned by an IRA (“IRA LLC”)?

Answer:  No:  I form Arizona IRA LLCs for $997.  I’m not a rocket scientist, but I am an Arizona LLC and business attorney who has a masters degree in income tax law from New York University School of Law.  I understand how to form IRA LLCs and have formed LLCs, including many IRA LLCs.  See our  five star Google & Birdeye reviews.

Why I Form IRA LLCs

Because I have formed limited liability companies, people frequently contact me and ask if I can create an Arizona LLC owned by one or more IRAs.  The answer is yes.  For the purpose of this article, when I […]

How to Invest Self Directed IRA Funds in a Limited Liability Company & Make Nontraditional Investments2019-02-13T08:06:21-07:00

How to Hire IRA LLC Attorney Richard Keyt to Form an IRA LLC

In forming Arizona limited liability companies, including LLCs owned by an IRA or a retirement plan IRA LLC attorney Richard Keyt has learned how to make the IRA LLC formation process very easy.  Here’s the 6 easy steps the IRA owner must accomplish to hire Richard to form an IRA LLC for $997 and get check book control over the IRA’s funds:

Step 1Research:  Spend some time on this website and learn about IRA LLCs.

Step 2Get Answers to Your IRA LLC Questions:  Contact me, IRA LLC attorney and tax lawyer Richard Keyt, at 480-664-7478 or [email protected] if you have any questions about forming or operating an IRA LLC.  I don’t charge to answer questions about IRA LLCs.

Step 3Move the Funds to a Custodian that Allows Directed-Investments:  If you cannot make self-directed investments where your funds are currently located, you must open an account with a custodian that will allow for the self-directed investments.  See “Custodians” that my clients have used for their IRA LLCs.  All […]

How to Hire IRA LLC Attorney Richard Keyt to Form an IRA LLC2020-07-11T07:32:11-07:00

Can I Form an Arizona IRA LLC & Do Business or Own Real Estate in Another State?

Question:  Neither I nor my IRA custodian is a resident of or is located in Arizona.  Can I form an IRA LLC in Arizona that will own and operate a business or own real estate in another state?  If so, are there additional costs?

Answer:  Yes.  An entity (LLC, corporation or limited partnership) formed in one state can register to do business in any other state in the United States.  Doing business includes owning real estate in a state other than the state in which the entity was formed.  For example, if you are a resident of New York, your custodian is located in Ohio and your IRA LLC will own real estate in California, your IRA could form an Arizona limited liability company and then register it to do business in California.  If hired, we will prepare the papers for an additional $200 (plus state filing fees) for each foreign state and file it with any state in which your IRA LLC will own real estate or own and operate a business.

To register an Arizona LLC to do business in California involves preparing and filing a registration form an paying a $70 filing fee.  […]

Can I Form an Arizona IRA LLC & Do Business or Own Real Estate in Another State?2017-09-10T15:14:29-07:00

Are self-directed IRAs too good to be true?

USA Today:  “A self-directed IRA allows you to invest in things other than securities registered with state or federal authorities. For example, you can use the assets in a self-directed IRA to buy a rental property, or even as the down payment for a mortgage on a rental property.  There are restrictions, however, on self-dealing: You can’t rent the place to yourself, for example. And you must have a qualified third-party custodian for the IRA.  Self-dealing restrictions on investing in small businesses — especially sole proprietorships — are also complex, and you should see a tax lawyer before you put IRA money into a small business. ‘Self-directed IRAs have helped fund thousands of small businesses that otherwise wouldn’t be there, says Tom Anderson, president of the Retirement Industry Trust Association, a trade group.”

Are self-directed IRAs too good to be true?2017-09-10T16:32:19-07:00

Vantage Retirement Plans, LLC

Websitewww.vantageiras.com

Contact:  Bobbielynn Berry, CISP – Business Development
Email:  [email protected]

Hours:  Weekdays:  9:00 AM – 5:00 PM (Arizona time)

Toll Free: (866) 459-4580
Phone: (480) 306-8404
Fax: (480) 306-8408

Email[email protected]

Mailing Address & Home Office:

Vantage Retirement Plans, LLC
20860 N. Tatum Blvd., Suite 240
Phoenix, AZ 85050

CaveatNeither KEYTLaw, LLC, nor Richard Keyt recommends the above company to act as a custodian of any IRA account.  The above company is listed on this IRA LLC Law website because Richard Keyt has formed at least one IRA LLC in which a member has been the above company as the custodian of an IRA.

Vantage Retirement Plans, LLC2023-02-26T16:08:22-07:00

IRA Services Trust Company

Formerly: IRA Services Trust Company

About: See Forge Trust’s about web page.

Hours:  Weekdays:  7:00 AM – 5:00 PM (Pacific Time)

Phone:  (800) 248-8447

Websitehttps://forgetrust.com/

Forge Trust Contact pagehttps://forgetrust.com/contact-us/

Mailing Address:

Forge Trust
P.O. Box 7080
San Carlos, CA 94070-7080

Home Office:

Forge Trust
401 E 8th St. Suite 200L
Sioux Falls, SD 57103-7015

CaveatNeither KEYTLaw, LLC, nor Richard Keyt recommends the above company to act as a custodian of any IRA account.  The above company is listed on this IRA LLC Law website because Richard Keyt has formed at least one IRA LLC in which a member has been the above company as the custodian of an IRA.

IRA Services Trust Company2023-02-26T16:08:15-07:00

The Self Directed IRA – The Basics all Estate Planners Should Know

Warren Baker’s post on the WealthCounsel blog states: “Let’s assume for a moment that your client’s goal is to invest into a piece of residential rental real estate. Your client can either:  (1) request that the new custodian purchase the property directly on behalf of the IRA; or (2) direct the custodian to first invest the IRA into a Limited Liability Company (“LLC”) that is thereafter 100% owned by the IRA and purchase the property using the LL (note: your client will act as the Manager of this LLC).  The latter option gives your client the flexibility to purchase the property using a check from the LLC’s checking account, which depending on the custodian’s ability to move quickly, will be quicker than option number one.”

The Self Directed IRA – The Basics all Estate Planners Should Know2018-05-13T13:58:52-07:00

Can My IRA Invest in Any Type of Asset?

Question:  Can I cause my self-directed IRA to invest in any type of asset I desire?

Answer:  No.  Section 408(a)(3) of the Internal Revenue Code says that an IRA may not invest in life insurance contracts (life insurance).  The IRS also restriction investments in “collectibles.”  Here is what IRS Publication 590 says about IRAs investing in collectibles:

“If your traditional IRA invests in collectibles, the amount invested is considered distributed to you in the year invested. You may have to pay the 10% additional tax on early distributions, discussed later.

Collectibles.  These include:

  • Artworks,
  • Rugs,
  • Antiques,
  • Metals,
  • Gems,
  • Stamps,
  • Coins,
  • Alcoholic beverages, and
  • Certain other tangible personal property.

Exception.  Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or one-ounce silver coins minted by the Treasury Department. It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion.”

Can My IRA Invest in Any Type of Asset?2018-05-13T13:58:52-07:00

The Individual 401(k)

The following article was posted by Ryan Rippy, the Business Development Manager of The Entrust Group.

Save more with an Individual 401(k) plan and expand your investment options with a self-directed account.  An Entrust self-directed Individual (k) Retirement Account gives you the maximum flexibility and financial ability in investing for your future. The Individual (k) is similar to a 401(k) but for businesses that employ only the owners, their spouses, and partners.

An Individual (k) plan has two components based on your employer and employee roles:

  • (Employee) Salary deferral, based on earned income, up to the allowed limit
  • (Employer) Profit-sharing contribution, maximum 25% of compensation, up to the allowed limit

With Entrust, you can establish the salary deferral component as either a Roth or traditional tax-deferred plan, which reduces your taxes now and offers tax-deferred savings. With the Roth, you make after-tax contributions to the account, and like a Roth IRA, future withdrawals are tax free.

If you currently have an Individual (k) and want to self-direct your funds into nontraditional investments, you can transfer or rollover the funds to Entrust without penalty.

Consider an Individual (k) retirement account if:

  • You are a sole […]
The Individual 401(k)2018-05-13T13:58:52-07:00

Department of Labor Regulation 29 CFR 2510.3-101 – the Plan Asset Rules

Department of Labor Regulation 29 CFR 2510.3-101 contains what are commonly called the Plan Asset Rules.  These rules can be complex, but they are important for all IRA LLCs because a violation of the plan asset regulation can be a prohibited transaction. The Department of Labor says:

“The plan asset regulation describes circumstances in which there is a ‘look through,’ which, if applicable, treats not only the interests in an investment fund owned by ERISA covered plans as ‘plan assets,’ but also the assets of the investment fund as ‘plan assets.’  If the look through applies, the ERISA fiduciary and prohibited transaction sections apply to parties dealing with the assets of the investment fund, such as the investment fund’s investment manager.”

The plan asset rules set forth the circumstances that can cause assets owned by an entity to be deemed to be assets of the ERISA qualified plan or the IRA unless an exemption applies.  When the plan asset rules cause the assets of an entity to be deemed to be assets of the IRA, any transaction involving the entity and a disqualified person will be a prohibited transaction.  If an IRA owns […]

Department of Labor Regulation 29 CFR 2510.3-101 – the Plan Asset Rules2019-03-17T14:14:37-07:00

Can the IRA Owner Pay the Costs of Forming an IRA LLC?

Question:  I want to form an IRA LLC to be owned by my IRA.  Can I pay the costs and expenses to be incurred to form the LLC?

No:  The owner of an IRA may not pay any amounts incurred to form an IRA LLC.  If the IRA owner pays any debt or obligation of the IRA LLC, it is a prohibited transaction.  It is the equivalent of a loan from the IRA owner to the plan, which is prohibited under Internal Revenue Code Section 4975(c)(1)(B).  The IRS deems any payment by the IRA owner of the IRA LLC’s debts or expenses as a disguised contribution of money to the IRA.

Notice the net result to the IRA in the following two examples and you will see why it is a prohibited transaction for the IRA owner to pay expenses of the IRA LLC:

Example 1 IRA Owner Pays LLC Formation Expenses

$50,000 = total in IRA account
$  1,000  = IRA LLC  formation expenses paid by the IRA owner from his/her bank account
$50,000 = total capital in the IRA account after paying formation expenses

Example 2Custodian Pays LLC Formation […]

Can the IRA Owner Pay the Costs of Forming an IRA LLC?2017-09-10T15:33:14-07:00

Can My IRA Invest More Money into an LLC Partially Owned by My IRA?

Question:  Two years ago my spouse and I caused our IRAs to make self-directed investments into an LLC that purchased a rental home.  Each IRA is a 50% member of the LLC.  The property needs repairs that will cost more money than the LLC has available.  Can we cause our IRAs to make additional capital contributions to the LLC to fund the repairs?

Answer:  No.  If either IRA were to make an additional capital contribution to the LLC, it would create a prohibited transaction under Internal Revenue Code Section 4975(c), which provides that a:

“prohibited transaction” means any direct or indirect— . . . transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan”

Because the two IRAs each own 50% of the LLC, the LLC is a disqualified person under Section 4975(e)(2)(G).  This provision says that a disqualified person is an entity 50% or more of which is owned by a fiduciary.  Each IRA custodian is a fiduciary with respect to its IRA account and because the custodian owns 50% of the LLC, the LLC […]

Can My IRA Invest More Money into an LLC Partially Owned by My IRA?2018-05-13T13:58:53-07:00

In Pictures: 12 Tips For IRA And 401(k) Heirs

Forbes:  “An inherited retirement account is more than a simple pot of cash. Often, an heir can stretch out withdrawals from an individual retirement account over his or her life expectancy, gaining decades of tax-deferred or (in the case of a Roth IRA) tax-free investment growth. But the IRS rules for doing this can be tricky. If you’re inheriting an IRA or 401(k), here’s what you need to know.”

In Pictures: 12 Tips For IRA And 401(k) Heirs2018-05-13T13:58:53-07:00

Articles on Converting to a Roth IRA

Here are a number of articles that I found on the net that discuss the pros and cons of converting a traditional IRA to a Roth IRA.

  • April 4, 2010.  “The Debate Goes On: To Roth or Not to Roth?” – InvestmentNews:  “For the superwealthy, conversion is a slam-dunk; others should be more careful.  The following is an edited transcript of an InvestmentNews.com webcast held in New York on March 9.  . . . To listen to the archive of the webcast, visit Investmentnews.com/rothtranscript and click ‘View archive’.”  One of the panelists was Ed Slott, the renowned IRA expert.
  • March 21, 2010.  “Many Wealthy Investors Reluctant to Do Roth IRA Conversions” – InvestmentNews:  “Many are ideal candidates, but they also face biggest tax bills.  Mutual fund companies are reporting a brisk business in Roth IRA conversions as a result of a change in the tax law, but there is one segment of the public that is decidedly cool to the idea, even though their financial advisers are urging them to take the plunge.  Wealth advisers said that a lot of their clients, many of whom would benefit […]
Articles on Converting to a Roth IRA2018-05-13T13:58:53-07:00

Investors Tap Into 401(k) Money Tax-Free for Business Startups

From the using your IRA or retirement account to self-direct investments department. An article in Investment News states, “Hal Mottet, a Lake Oswego, Oregon, businessman bought a family-owned packaging company for $3.5 million in late 2007, and he and a partner financed 40 percent of the sales price with their retirement money. Mottet and his partner used a loophole in U.S. tax law to roll over $1.4 million from their existing 401(k) retirement plans to finance the purchase of Carson, California-based Empire Container Corp. . . . Here’s how it typically works: An investor sets up a corporation, establishes a new 401(k) plan there, rolls over his or her existing 401(k) or Individual Retirement Account, and then uses part or all of the plan’s assets to buy shares of the new company. This funds the new business, while keeping the tax- advantages of the retirement plan.”

Investors Tap Into 401(k) Money Tax-Free for Business Startups2018-05-13T13:58:53-07:00

Can My Grandchild Borrow Money from My IRA LLC?

Question:  My IRA is the sole member of my IRA LLC.  Can my IRA LLC loan money to my grandchild?

Answer:  Legally yes, but the loan would be a transaction between the IRA LLC and a disqualified person, which is a prohibited transaction under Section 4975(c) of the Internal Revenue Code.  A disqualified person includes ascendants (parents and grandparents) and descendants (children, grandchildren, etc.) of the owner of the IRA and spouses of descendants.

Consequences of a Prohibited Transaction

An IRA LLC that engages in a prohibited transaction will cause the IRA to lose its tax-exempt status as of the first day of the tax year in which the prohibited transaction occurs.  This means that the IRA is deemed to have distributed to the IRA owner all of the assets in the IRA and the IRA owner must include in income for the year the fair market value of the assets as of the first day of the year unless the IRA is a Roth IRA.  If the IRA owner is under 59 1/2, the distribution will also cause a ten percent penalty.

Can My Grandchild Borrow Money from My IRA LLC?2018-05-13T13:58:53-07:00

Why Do Some Document Preparers & Attorneys Charge a Lot More to Form an IRA LLC than You Charge?

Question:  Why do some document preparers and attorneys charge substantially more than the $997 you charge to form an IRA LLC?

Answer:  Because they can get away with it.  Most attorneys who may routinely form limited liability companies never form an LLC that has an IRA or a retirement plan as a member so they are unlikely to form this type of LLC when asked.  Most of the small number of attorneys and document preparers who actually form IRA LLCs charge far too much because they have little, if any competition, and they know that is it very unlikely a prospective client/customer will be able to find somebody else with the knowledge and experience to form an IRA LLC.  These types charge far too much because they believe they have a monopoly and can set a high price because clients/customers have no other place to go to form an IRA LLC.

A few years ago I went to a seminar here in Phoenix, Arizona, about how to use self-directed IRA funds to invest in real estate through an IRA LLC.  The person who gave the presentation was an attorney not licensed to practice law in Arizona.  […]

Why Do Some Document Preparers & Attorneys Charge a Lot More to Form an IRA LLC than You Charge?2018-05-13T13:58:53-07:00

IRS Publication 590 on Prohibited Transactions

IRS Publication 590 is entitled “Individual Retirement Arrangements.”  The following text is from page 43 of Publication 590:

What Acts Result in Penalties or Additional Taxes?

The tax advantages of using traditional lRAs for retirement savings can be offset by additional taxes and penalties if you do not follow the rules.  There are additions to the regular tax for using your IRA funds in prohibited transactions.  There are also additional taxes for the following activities.

  • Investing in collectibles.
  • Making excess contributions.
  • Taking early distributions.
  • Allowing excess amounts to accumulate (failing to take required distributions).

There are penalties for overstating the amount of nondeductible contributions and for failure to file Form 8606, if required.

This chapter discusses those acts that you should avoid and the additional taxes and other costs, including loss of IRA status, that apply if you do not avoid those acts.

Prohibited Transactions

Generally, a prohibited transaction is any improper use of your traditional IRA account or annuity by you, your beneficiary, or any disqualified person.

Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of […]

IRS Publication 590 on Prohibited Transactions2018-05-13T13:58:54-07:00

Definition of a Disqualified Person

Because the Internal Revenue Code prohibits an IRA LLC from engaging in transactions with a disqualified person, every member and manager of an IRA LLC must know the people and entities that are disqualified persons.  Internal Revenue Code Section 4975(e)(2) contains the definition of a disqualified person.  This section states that a disqualified person is:

(A) a fiduciary [the IRA owner is a fiduciary];

(B) a person providing services to the plan;

(C) an employer any of whose employees are covered by the plan;

(D) an employee organization any of whose members are covered by the plan;

(E) an owner, direct or indirect, of 50 percent or more of—

(i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of a corporation,

(ii) the capital interest or the profits interest of a partnership, or

(iii) the beneficial interest of a trust or unincorporated enterprise, which is an employer or an employee organization described in subparagraph (C) or (D);

(F) a member of the family (as defined in paragraph (6) [which states: the family of any individual […]

Definition of a Disqualified Person2018-05-13T13:58:54-07:00

Caution: An IRA LLC Transaction that Indirectly Benefits the IRA Owner Is a Prohibited Transaction

If your IRA is a member of an IRA LLC, you must know and follow the prohibited transaction rules set forth in Internal Revenue Code Section 4975.  Many prohibited transaction rules are obvious such as the IRA LLC cannot loan money to the IRA owner or buy, sell or lease property with the IRA owner.

The prohibited transaction rules also contain a general, but nebulous rule some times referred to as the “indirect benefits” rule.  If the IRA LLC engages in a transaction that creates an “indirect benefit” for the IRA owner, it is also a prohibited transaction that will disqualify the IRA, cause the IRA to lose its tax-exempt status and result in a deemed distribution of the all the assets to the IRA owner as of the first day of the tax year in which the prohibited transaction occurred.

The indirect benefit rule is codified in Internal Revenue Code Section 4975(c)(1) (E), which states that a:

prohibited transaction means any direct or indirect . . . act by a disqualified person who is a fiduciary whereby he deals with the income or assets of a plan in his own interests […]

Caution: An IRA LLC Transaction that Indirectly Benefits the IRA Owner Is a Prohibited Transaction2018-05-13T13:58:54-07:00

Internal Revenue Code Sections that Affect IRAs & IRA LLCs

The following is a list of sections from the Internal Revenue Code of 1986, as amended, that affect IRAs and IRA LLCs:

  • Section 408(a)(3) – This is the section that prohibits IRAs from investing in life insurance contracts.
  • Section 408(e)(2) – This section provides that an IRA that engages in a prohibited transaction will lose its tax-exempt status if it engages in a prohibited transaction.  The consequences of a traditional IRA that loses its tax-exemption is that the fair market value of all of the IRA’s assets are included in the income of the IRA owner in the year of the prohibited transaction.
  • Section 408(e)(4) – This section prohibits an IRA from pledging any of its assets as security for a loan.
  • Section 408(m) – This is the section that prohibits an IRA from investing in collectibles.
  • Section 4975 – This lengthy section contains the critically important prohibited transactions rules.

There are also important United States Treasury Regulations that state what happens if an IRA engages in a prohibited transaction, pledges IRA assets as […]

Internal Revenue Code Sections that Affect IRAs & IRA LLCs2017-09-10T15:41:56-07:00

IRA Related IRS Publications

IRS Publications Concerning IRAs & Small Business Plans

IRS Publications Concerning Health Savings & Education Plans

IRA Related IRS Publications2017-09-10T15:42:58-07:00

What We Do When Hired to Form Your IRA LLC

When people hire me to form an IRA LLC, I don’t just fill in the blanks in a state created form, file it with the Arizona Corporation Commission and give you an Operating Agreement created for non-IRA LLCs.  Here is a list of the 13 services I provide when I am hired to form an Arizona IRA LLC:

1.  Unlimited telephone calls with Arizona IRA LLC attorney Richard Keyt (480-664-7478) to answer your questions about forming the company.

2.  Name selection advice.

3.  Discuss any formation issues & the Articles of Organization with the Custodian and make any changes to the Articles requested by the contact person or the Custodian.

4.  File the Articles of Organization with the Arizona Corporation Commission (“ACC”) and get the ACC’s approval the day we are paid and you approve your LLC formation questionnaire.

5.  The day we file the Articles of Organization we will send an email to the IRA account owner that contains the ACC’s approved and filed Articles of Organization.  The manager needs this document to open the LLC’s bank account.

6.  Obtain a federal employer […]

What We Do When Hired to Form Your IRA LLC2020-05-20T06:08:42-07:00

Five Rules for Inherited IRAs

We create IRAs and retirement plans to provide income during our retirement years, but we also expect that on our deaths our loved ones will inherit a sizable sum of money from the IRA or the retirement plan. Everyone knows or should know that the proper way to transfer IRA and retirement plan assets on the death of the IRA owner or plan participant is by a beneficiary designation.

I believe that IRA owners and retirement plan participants should do more than simply complete a beneficiary designation form.  They should also educate their adult beneficiaries about fundamental IRA concepts to prevent them from immediately cash out the inherited IRA or plan and blow the money on an expensive car or other foolish expenditures.

Forbes has a great article called “Five Rules For Inherited IRAs” that is a must read article for anybody whose IRA or retirement plan may leave substantial assets to loved ones.  The article begins:

“Before they inherited $3 million in retirement accounts from their father last year, the three middle-aged siblings didn’t know it was possible for heirs to stretch out the tax benefits of such accounts for decades. […]

Five Rules for Inherited IRAs2017-09-10T15:47:30-07:00

Stepping Outside the Real Estate “Box” with Self Directed Retirement Accounts

Laurie Bachelder, Principal of  NUA Advisors, LLC, writes:  Investors tired of watching their retirement accounts ride the Wall St. rollercoaster are searching for other ways to create wealth in their retirement accounts. If you turn to most business or financial publications or websites you will find many articles about investing in real estate with a Self Directed Retirement Account (‘SDRA’).  The majority of articles written about investing with a SDRA pertain to real estate as a popular choice for an alternative investment, and why wouldn’t it be.  Real estate offers several advantages.”

Stepping Outside the Real Estate “Box” with Self Directed Retirement Accounts2017-09-10T15:49:30-07:00

The Essentials of Self-directing Retirement Accounts

Ann Siford, Manager of Professional Network at Equity Trust Company writes:  “A self-directed IRA allows investors to directly manage their retirement portfolio, diversifying beyond the traditional mutual funds, stocks and bonds to include assets such as real estate, promissory notes, tax liens, private placements and oil/gas.”

The Essentials of Self-directing Retirement Accounts2017-09-10T15:58:44-07:00

The Hidden Dangers in IRAs

Wall St. Journal:  “Is there a Ponzi scheme lurking in your IRA?  That may sound like a bizarre question. But in recent years, a number of well-off professionals and their families have been ensnared in frauds that prey on individual retirement accounts, according to securities lawyers and firms that manage these accounts.  The vehicle typically targeted by such schemes is a self-directed IRA . . . .”

The Hidden Dangers in IRAs2017-09-10T15:57:30-07:00

IRS Private Letter Rulings Concerning IRAs

An IRS private letter rulings (PLRs) is a statement by the IRS given to a taxpayer who submitted a request to the IRS for it’s position with respect to one or more federal tax issues set forth in the PLR.  The PLR process is a way for a taxpayer to determine in advance of taking action if the proposed action will cause a problem with the IRS.  PLRs annot be relied on by any person except the person who applied for and obtained the PLR.  Although PLRs do not have any precedential value, they are instructive because they do indicate IRS thinking with respect to the issues addressed in the PLR.

Note: As we discuss IRS Private Letter Rulings we are not giving any tax or legal advice. 

IRS Private Letter Rulings have little precedential value. The statements made by the IRS in Private Letter Rulings can be relied on only by the taxpayer(s) who requested the Private Letter Ruling.  The IRS Private Letter Rulings listed below are for informational purposes and to inform you as to positions and statements made by the IRS with respect to IRA investments and transactions.

IRS Private Letter […]

IRS Private Letter Rulings Concerning IRAs2018-05-13T13:58:54-07:00

Rothify Your 401(k)

Forbes:  “Got an ex-employer retirement account sitting around? You can convert it–and maybe your current 401(k), too–into a Roth IRA.  Are you one of the 15 million Americans who has a 401(k) left behind with an ex-employer? Alternatively: Does your current company allow you to make “in-service” rollovers from its 401(k) to an individual retirement account? (Most employers do allow such rollovers for workers 59.5 or older, and a minority allow them for younger workers.)  Either way, you may have a tax-saving option you haven’t heard about: converting an old 401(k) or part of a current one into a Roth IRA.”

Rothify Your 401(k)2017-09-10T15:55:51-07:00

Roth Conversion Shenanigans

Forbes:  “Sure it might make sense to take the tax hit now and get into a Roth IRA, but don’t blindly trust what your broker suggests.  Much has been written about Roth conversion opportunities in 2010. It seems every product manufacturer and annuity pitchman in the country is recommending some variation of a Roth conversion strategy. Many such schemes, which masquerade as advice, are but hollow mockeries designed to line the pockets of product manufacturers, their salesmen, and the U.S. Treasury. Legitimate Roth conversion strategies do exist, but they are the exception rather than the rule.”

Roth Conversion Shenanigans2017-09-10T15:55:21-07:00

You Inherited An IRA. Can Creditors Grab It?

Forbes:  “More Americans will be handing down IRAs to their kids. A new decision suggests it might be a creditor proof inheritance.  But nothing is certain yet.   In what estate planners and bankruptcy lawyers are saying could be a significant case, a federal bankruptcy judge in Minnesota has allowed a bankrupt woman to keep a $63,000 individual retirement account inherited from her father.  IRAs inherited from someone other than your spouse have traditionally not been protected in bankruptcy under either federal or state laws, and thus have been available for creditors to grab.”

The case is In re Nessa, a federal bankruptcy case out of Minnesota.

You Inherited An IRA. Can Creditors Grab It?2019-03-17T14:14:14-07:00

Five Reasons Not To Convert To A Roth IRA

Forbes:  “Will your tax rate be lower in retirement? Do you plan to spend all your savings? Think twice about a conversion.  In recent months, you’ve probably heard a lot about the benefits of converting traditional pre-tax individual retirement accounts into Roth IRAs. But here’s something you may not have heard: Many taxpayers should run, not walk, from a Roth conversion.”

Five Reasons Not To Convert To A Roth IRA2018-05-13T13:58:55-07:00

The Dog Ate My IRA Rollover

Forbes:  “If you miss the 60-day rollover deadline, will the IRS be sympathetic?  You can move wealth from a company pension plan, a 401(k) or traditional Individual Retirement Account into a traditional IRA without owing any taxes in what’s known as a ‘rollover.’ . . . a surprising number of taxpayers make mistakes when doing a simple rollover and end up either paying taxes prematurely or paying an expert like me to help them clear up the mess.”

This article was written by Robert S. Keebler, CPA, MST, AEP (Distinguished) is a partner with Baker Tilly Virchow Krause, LLP and chair of the Baker Tilly Financial and Estate Planning Group. He is the author of The Rebirth of Roth, A CPA’s Ultimate Guide for Client Care. Mr. Keebler was named by CPA Magazine as one of the Top 100 Most Influential Practitioners in the United States and one of the Top 40 Tax Advisors to Know During a Recession.

I known that Mr. Keebler is one of the leading experts in the area of IRA law because of his close relationship with WealthCounsel, a fabulous company that produces the best […]

The Dog Ate My IRA Rollover2018-05-13T13:58:55-07:00

The Entrust Group

Websitewww.theentrustgroup.com/

Hours:  Weekdays:  9:00 AM – 5:00 PM (Pacific time)

Phone:  (800) 392-9653
Fax:  (866) 815-5168

Mailing Address & Home Office:

The Entrust Group
Irvine Center Drive, Suite 800
Irvine, CA 92618

CaveatNeither KEYTLaw, LLC, nor Richard Keyt recommends the above company to act as a custodian of any IRA account.  The above company is listed on this IRA LLC Law website because Richard Keyt has formed at least one IRA LLC in which a member has been the above company as the custodian of an IRA.

The Entrust Group2023-02-26T16:07:59-07:00

Call Richard Keyt Now

If you have any questions about forming or operating an IRA LLC, call me, Arizona IRA LLC attorney Richard Keyt who has formed Arizona LLCs.  I do not charge for questions about forming IRA LLCs.  I do charge a fee, however, for giving an opinion on whether a specific proposed transaction would be a prohibited transaction.  If you have questions about the timing or mechanics or any other aspect about forming an Arizona IRA LLC, call me at on my direct phone line

480-664-7478

Remember, the first step in actually forming an IRA LLC is to find a custodian that will allow the self directed IRA investment.  I do not recommend self-directed custodians, but my Custodian topic area lists IRA custodians that have been a member of IRA LLCs that I have formed.

Call Richard Keyt Now2017-09-10T16:08:55-07:00

The Roth Conversion Question

Forbes:  “Come Jan. 1 anyone can convert a traditional IRA into a Roth IRA. Not everyone should. Here’s help deciding if the strategy fits you.  Next year all taxpayers will be allowed to convert their traditional individual retirement accounts into Roth IRAs, . . . Conversions are complicated and make sense only for certain taxpayers. Even those who might reap big benefits from converting have to overcome a natural aversion to paying taxes sooner than needed.”

The Roth Conversion Question2017-09-10T16:04:58-07:00

Self Directed IRA Services, Inc.

About: See Self Directed IRA Services, Inc.’s company profile web page.

Phone:  (866) 928–9394

Open an Account:    See Self Directed IRA Services, Inc.’s Get Started webpage.

Websitewww.sdiraservices.com

Email[email protected]

Mailing and Street Address:

600 Congress Avenue, Suite 400
Austin, TX 78701

CaveatNeither KEYTLaw, LLC, nor Richard Keyt recommends the above company to act as a custodian of any IRA account.

Self Directed IRA Services, Inc.2010-09-29T14:29:03-07:00

Savvy Buyers Use Self-directed IRA to Buy Homes

San Francisco Chronicle:  “With many properties at bargain-basement prices, more people have been turning to their self-directed IRAs as a ready source of capital to make real estate investments. Companies that manage self-directed IRAs say real estate investments by their clients are up as much as 30 percent over the past year. . . . Self-directed IRAs account for just 2 percent of the $4.2 trillion IRA market, but are among its fastest- growing segments. They allow access to a variety of investment vehicles beyond just stocks and bonds. The IRS closely regulates them, and any real estate investments must be handled by IRA custodian firms that hold the property inside the IRA.”

Savvy Buyers Use Self-directed IRA to Buy Homes2018-05-13T13:58:56-07:00

Kinky IRAs

Forbes:  “Church bonds. Mexican land. Pay telephones. Swiss annuities. Bus shelters. Gold coins. Paintings. Mortgages. Untraded stock. Bull sperm.  Bet you don’t know which five of these ten assets are permissible investments in Individual Retirement Accounts. . . . If you’re interested in unconventional assets, it’s worth boning up on the rules, because most lawyers and IRA custodians have only partial knowledge.”

See the table of custodians that allows self directed IRA investments.

Kinky IRAs2018-05-13T13:58:56-07:00

Self-Directed IRA a Good Bet?

CNBC:  “If you recently watched your individual retirement account or 401(k) drop by double digits, you may wonder if there is a better way to sock away money in an uncertain economy.  What if you could replace some of your investments with tax-deferred holdings not tied to the troubles on Wall Street? Maybe you’d prefer to invest in cattle in Wyoming, a gas station in Philadelphia or an underwater cemetery in Miami.”

Self-Directed IRA a Good Bet?2017-09-10T16:28:06-07:00

What is the Plan Asset Rule?

All IRA owners who have made self-directed investments into an IRA LLC and anybody considering do so should read Jeff Nabers’ article called “What is the Plan Asset Rule?”  This rule turns assets owned by an entity into assets that are deemed to be assets of the IRA with the consequence that any transaction between a disqualified person and the entity is a prohibited transaction.

“The plan asset rule, among other things, is used to determine whether or not a retirement plan is involved in a prohibited transaction.”

See my post called “Department of Labor Regulation 29 CFR 2510.3-101 – the Plan Asset Rules.”

What is the Plan Asset Rule?2018-05-13T13:58:56-07:00

Department of Labor Advisory Opinion 2006-09A

[RK Summary:  The Department of Labor ruled that an IRA owner could not cause the IRA to invest in promissory notes issued by an entity that was controlled by the IRA owner’s son in law because it would be a prohibited transaction under Internal Revenue Code Section 4975.]

The text of  Department of Labor Advisory Opinion 2006-09A is below.

December 19, 2006
Edward A. Appelt
24 Winslow Drive
Pittsburg, PA 15229

Department of Labor Advisory Opinion 2006-09A
IRC Section 4975 (c)(1)(A) & (B)

Dear Mr. Appelt:

This is in response to your request for an advisory opinion under section 4975 of the Internal Revenue Code (Code). Specifically, you ask whether allowing the owner of an individual retirement account (IRA) to direct the IRA to invest in notes being offered by a corporation, in which a relative of the IRA owner is the majority owner and stockholder, would give rise to a prohibited transaction under Code section 4975.(1)

You represent that as the owner of an IRA for which you have retained investment discretion, you would like to direct the investment of these IRA funds into notes (Notes) that are […]

Department of Labor Advisory Opinion 2006-09A2019-03-17T14:14:14-07:00

Department of Labor Advisory Opinion 2006-01A

RK Summary:  The Department of Labor ruled that an IRA owner could not cause the IRA to invest in a new limited liability company that would purchase real estate and lease it to an entity 68%  of which is owned by the IRA owner because it would be a prohibited transaction under Internal Revenue Code Section 4975.  The opinion contains a statement that IRA owners should always keep in mind before an IRA LLC makes an investment”  “the Department considers “a fiduciary who makes or retains an investment in a corporation or partnership for the purpose of avoiding the application of the fiduciary responsibility provisions of the Act to be in contravention of the provisions of section 404(a) of the Act.”

The text of Department of Labor Advisory Opinion 2006-01A is below.

January 6, 2006
Debra C. Buchanan, Esq.
Guidant Legal Group, PLLC
225 Commerce Street, Suite 450
Tacoma, WA 98402

Department of Labor Advisory Opinion 2006-01A
ERISA Sec. 29 CFR 2509.75-2

Dear Ms. Buchanan,

This is in response to your request for an advisory opinion as to whether the following proposed transaction would be prohibited under section 4975 of […]

Department of Labor Advisory Opinion 2006-01A2019-03-17T14:14:14-07:00

When Can an IRA Invest in a Business Partly Owned the IRA Owner the IRA Owner’s Family?

Texas attorney Noel C. Ice wrote a very detailed law review type article called “Under What Circumstances Can an IRA Invest in a Business Owned in Part by the IRA Owner and Members of The IRA Owner’s Family?”  If you want to get into the nuts and bolts of the law, this article is for you.  Here’s some text from the introduction:

“Can an IRA form or invest in a partnership (or other entity) in which the IRA and other disqualified persons have more than a 50% interest in capital or profits without violating the prohibited transaction rules? Maybe, if Swanson [1] is followed.”

“Can an IRA form or invest in a partnership (or other entity) in which the IRA and other disqualified persons have less than a 50% interest in capital or profits prior to formation, but who have more than a 50% interest in capital or profits after formation, without violating the prohibited transaction rules? Theoretically yes, according to PWBOpL 2000-10A and FSA 200128011.”

“Can an IRA form or invest in a partnership (or other entity) in which the IRA and other disqualified persons have less than a 50% interest in capital or profits without violating the prohibited […]

When Can an IRA Invest in a Business Partly Owned the IRA Owner the IRA Owner’s Family?2018-09-28T09:54:59-07:00

Department of Labor Advisory Opinion 2000-10A

[RK Summary:  The Department of Labor ruled that a prohibited transaction would not occur under Internal Revenue Code Section 4975(c)(1)(A) if an IRA owner caused the IRA to purchase a 39.38%  of limited partnership interests in a limited partnership in which the IRA owner was the sole general partner with a 6.52% interest and in which the IRA owner owned 12.11% through his investment in another entity despite members of his family also owning limited partnership interests in the same limited partnership.”  Note:  The IRA owner was Leonard B. Adler and he had money in the Fetner Family Partnership that invested money with the now infamous Bernard Madoff.]

The text of Department of Labor Advisory Opinion 2000-10A is below.

July 27, 2000

Hugh Janow
Janow & Meyer, LLC
One Blue Hill Plaza
P.O. Box 1606 Suite 1006
Pearl River, N.Y. 10965-8606

Department of Labor Advisory Opinion2000 – 10A
ERISA Section 4975(c)(1)(A)

Dear Mr. Janow:

This is in response to your request for an advisory opinion under section 4975 of the Internal Revenue Code (Code). Specifically, you ask whether allowing the owner of an IRA to direct the IRA to […]

Department of Labor Advisory Opinion 2000-10A2019-03-17T14:14:13-07:00

Department of Labor Advisory Opinion 1993-33A

[RK Summary:  The Department of Labor ruled that an IRA owner could not cause the IRA to purchase land at fair market value from a tax-exempt entity of which the IRA owner’s daughter and son-in-law were the officers and directors and then lease the land back to the entity at fair-market rent or below market rent, depending on the entity’s ability to pay because it would be a prohibited transaction with a disqualified person under Internal Revenue Code Section 4975.]

December 16, 1993

Mr. Roberto Faith
1101 S.W. 102 Court
Miami, Florida 33174

Department of Labor Advisory Opinion 2006-09A
IRC Section 4975 (c)(1)

Dear Mr. Faith:

Your letter to the Internal Revenue Service (the Service) has been forwarded to this Office for our consideration and response with respect to the first of the two rulings you requested. You request guidance concerning the application of the prohibited transaction provisions of the Internal Revenue Code (the Code) to a proposed purchase and lease-back of a tax-exempt school’s land and building by a self-directed Individual Retirement Account (the IRA). Specifically, you ask whether the purchase and lease-back of the school would result in a prohibited transaction under section 4975 of the […]

Department of Labor Advisory Opinion 1993-33A2019-03-17T14:14:13-07:00
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