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November 28, 2023

Self-Directed Roth IRA LLC: The Key to Tax-Free Investment Growth and Control

Key Points 

  • A Self-Directed Roth IRA LLC is a retirement account that allows account holders to invest in alternative assets and grow tax-free savings.
  • A Self-Directed Roth IRA LLC enables you to invest with checkbook control so you can make your everyday transactions in real time.
  • Broad Financial’s knowledgeable team and streamlined processes make it simple to set up and manage your Self-Directed Roth IRA LLC.
One-hundred-dollar bills growing in the dirt to show the potential of tax-free investment growth and control through a Self-Directed Roth IRA LLC.

Saving for retirement is an important financial goal to achieve. While we all may have the same basic goal, each of our journeys to retirement is unique. Based on your investment preferences, you may seek to open one retirement account type over another.

Some investors may look to receive a tax break now by contributing to a Self-Directed Traditional IRA. Other investors may want to receive their tax break in retirement through a Self-Directed Roth IRA. For those who desire even more flexibility and control, a Self-Directed Roth IRA LLC may be a better option. 

Let’s explore what a Self-Directed Roth IRA LLC is, how it differs from a Self-Directed Traditional IRA, and its benefits.

What’s the Difference Between a Roth IRA vs. Traditional IRA?

Street sign that says “Retirement: Roth IRA” with arrow pointing right and blue sky and clouds in the background.

Before diving into the details of a Self-Directed Roth IRA LLC, it’s essential to understand the basics of a Roth IRA, Traditional IRA, and Self-Directed IRA.

Roth IRA – An individual retirement account (IRA) that allows account holders to contribute after-tax dollars, which grow tax-free. Then, when you make a qualified distribution in retirement, you won't owe income tax on the money you withdraw, including earnings.

Traditional IRA – An IRA that allows account owners to contribute pre-tax dollars, which grow tax-deferred. Then, in retirement you are required to pay taxes on the contributions and earnings.

Self-Directed IRA – An IRA that allows account holders to invest in a broader range of investments outside of Wall Street including real estate, cryptocurrency, and private equity. You can open a Self-Directed IRA as a Self-Directed Roth IRA or Self-Directed Traditional IRA.

One of the most appealing features of a Broad Financial Self-Directed IRA is its ability to have checkbook control. This is where the Self-Directed Roth IRA LLC comes in.

Letters on a desk that spell out “SDIRA” next to a calculator and money to show that you can grow your retirement savings with a Self-Directed IRA.

What is a Self-Directed Roth IRA LLC?

A Self-Directed Roth IRA LLC (also called a Checkbook IRA) is a powerful retirement account that allows you to manage your IRA’s assets on your own time, without going through your Self-Directed IRA custodian for every transaction.

How Does a Self-Directed Roth IRA LLC Work?

Blocks with LLC written on them with calculator and notebook on a table.

By adding an entity, such as a Limited Liability Company (LLC), and a checking account in the name of your LLC, you get to perform you get to perform your everyday transactions on behalf of your IRA. This includes most of the transactions that typically must go through a custodian including investment purchases, sales, and maintenance.

By using your Self-Directed Roth IRA LLC checking account, you can invest in real-time by simply writing a check or sending a wire. This also allows you to avoid paying everyday transaction fees usually associated with classic Self-Directed IRAs.

Unique Regulations for a Self-Directed Roth IRA LLC

  • Tax Treatment – Unlike a Traditional IRA LLC, Roth IRA contributions are not deductible. Instead, tax savings come when your earnings and contributions are withdrawn tax-free in retirement.   
  • Avoid Required Minimum Distributions (RMDs) – In a Traditional IRA, RMDs are required starting at age 73 as of 2023. Roth IRA account holders are not required to take RMDs. 

What Are the Benefits of a Self-Directed Roth IRA LLC?

Icon of an increasing trend graph to display the potential for tax-free growth when you invest with a Self-Directed Roth IRA LLC.

Tax Free Growth

Similar to a standard Roth IRA, the earnings within your Self-Directed Roth IRA LLC grow tax-free. You pay taxes when you contribute to the account, so in retirement you can make tax-free distributions.

Icon of papers and a pencil to display the checkbook control capability of a Self-Directed Roth IRA LLC

Checkbook Control

By establishing an LLC for your Self-Directed IRA and a checking account for your LLC, you gain checkbook control. This gives you direct control over your funds to make real-time investments while saving on everyday transaction fees.

Icon of coins with a circle around it with points all around to display that you can diversify your retirement portfolio with a Self-Directed Roth IRA LLC.

Diversification

With a Self-Directed IRA you can diversify your portfolio across several alternative asset classes, which generally reduces risk and increases the potential for steady returns.

Icon of hands holding up a dollar sign on a coin to display that a Self-Directed Roth IRA LLC offers simplified investment management.

Simplified Investment Management

Under the umbrella of your Self-Directed Roth IRA LLC, you can manage multiple investments under one entity. This may simplify record-keeping, reporting, and tax-filing requirements.

Icon of a security shield with a check on it to display that a Self-Directed Roth IRA LLC has superior liability protection.

Superior Liability Protection

Investing through an LLC can add a layer of liability protection to your retirement account. All investments are in the name of your Self-Directed Roth IRA LLC, not in your personal name.

How Do I Set Up a Self-Directed Roth IRA LLC?

1. Open and Fund a Self-Directed IRA

First, complete Broad Financial’s easy online application. Simultaneously, open a new Self-Directed IRA with our sister company, Madison Trust. Madison Trust is your Self-Directed IRA custodian.

Next, transfer or rollover all – or a portion of – your funds from an existing retirement account such as an IRA or 401(k) or make an initial contribution.

2. Establish an LLC for Your IRA

Broad Financial creates a specialized, IRS-compliant LLC for your IRA and takes care of the paperwork. You are appointed as the LLC’s non-compensated manager, authorizing you to place all investments.

3. Open and Fund an IRA LLC Checking Account

Then, open a checking account in the name of the LLC at the bank of your choice. This upgrades your IRA LLC to the power of checkbook control. After, instruct Madison Trust to send funds to the IRA LLC checking account.

4. Invest in Alternative Assets in Real Time

Invest by simply writing a check or sending a wire from your new LLC checking account! Since the specialized LLC is owned by your IRA, all assets purchased are automatically part of your tax-advantaged retirement account.

Conclusion: Let's Tie It All Up

Selecting the right retirement account is an important decision when planning your financial future. Investors looking to maximize their retirement savings and have greater control of their investments may want to consider a Self-Directed Roth IRA LLC.

Self-Directed Roth IRA LLC investor sitting on a bench in a park looking at his tablet.

You Have Questions? We Have Answers!

Broad Financial’s dedicated team is here to answer all of your questions about self-directed investing. Schedule a free discovery call today to get your questions answered!


Disclaimer: Broad Financial LLC does not provide legal, tax, or investment advice. Please consult with your tax or legal advisor before making investment decisions. 

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