Speak with a Broad specialist:
(800) 395-5200Schedule a CallOpen an Account
Speak with a Broad specialist:
(800) 395-5200Schedule a CallOpen an Account

October 3, 2019

The Legality of Our Ultimate IRA


Simply because the existence of Self-Directed IRAs is not common knowledge, it leaves many wondering whether or not the investment vehicle is even legal.

Rest assured: it absolutely is.

Your unfamiliarity with SD IRAs is often due to traditional retirement investing firms shielding their clients from the ability to venture into alternative investments, due to the lack of incentive on their end to take your assets off of Wall Street. Without knowing that, however, it can be easy for people to convince themselves that if something isn't offered by Vanguard, or Fidelity, or TD Ameritrade, then it can't be a viable option.

Aside from that subset of investors, there are those who have seen in their research that Self-Directed IRAs are 100% legal, but are skeptical of the information they find on the Internet. Even more so, these people grow skeptical of each company's different variations on the standard Self-Directed IRA. For example, Broad Financial offers the Ultimate IRA, which we consider to be the premiere SD IRA option on the market.

Fully believing in the legitimacy of something you don't see many doing is often counter to human nature, so it is understandable. Only when one is exposed to information that is irrefutable can their opinion — and willingness to fully embrace the new information — truly change.

There are many ways to convey information that leaves no doubt in people's minds. The most effective is usually through video. As they say, seeing is believing. Unfortunately, we don't possess the video from when the U.S. government declared Self-Directed IRAs legal. We do have the next best thing, though: Written confirmation of our Ultimate IRA's legal standing from leading ERISA attorneys at Davis & Gilbert LLP.

We reached out to them for their legal opinion, and they delivered their expert, objective conclusions. No matter what level of skepticism you may possess about the legality of Self-Directed IRAs, leave no doubts by reading excerpts from their opinion letter for yourself here:

Re: Legal Opinion Confirming the Legality of Broad Financial's Ultimate IRA®

You have requested us to review the structure of your firm's proprietary Self-­Directed IRA, known as the Ultimate IRA® and confirm its legal standing. The concept behind the Ultimate IRA® is for an individual retirement account ("IRA") as described under Section 408(a) of the Internal Revenue Code of 1986, as amended (the "Code") to invest in a newly formed special purpose limited liability company ("LLC") and to be its initial and sole-member, with the IRA account holder acting as the non-compensated manager. Our findings are that the Ultimate IRA® is a legally acceptable structure as it should not be deemed a prohibited transaction within the meaning of Section 4975(c)(1 )(A), (D) or (E) of the Code, as described below.

For purposes of rendering this opinion, we are relying upon certain statements and information provided by you. We have, consequently, assumed and relied on your representation that the statements and information provided by you, accurately and completely describes all material facts relevant to this opinion. We have assumed that such statements and information are true without regard to any qualification as to knowledge or belief. Our opinion is conditioned on the continuing accuracy and completeness of such statements and information. Any material change or inaccuracy in the facts referred to, set forth, or assumed herein may affect our conclusions set forth herein.

In rendering our opinion, we have considered and relied upon the Code, the regulations promulgated thereunder ("Regulations"), administrative rulings and other interpretations of the Code and the Regulations by the courts and the Internal Revenue Service ("IRS"), and certain other government pronouncements, all as they exist at the date hereof. In should be noted that the Code, Regulations, judicial decisions, administrative interpretations, and pronouncements are subject to change at any time. A material change that is made after the date hereof in any of the foregoing bases for our opinion could affect our conclusions set forth herein. In this regard, an opinion of counsel with respect to an issue represents counsel's best judgment as to the outcome on the merits with respect to such issue, and is not binding on the IRS or the courts.

In the present situation, Broad Financial will be coordinating and facilitating the creation of the LLCs. In each case, the initial and sole member of the LLC will be an IRA. As the LLC will not have any members or membership interests at the time the IRA becomes its initial and sole member, the LLC should not be a "disqualified person" with respect to the IRA at the time the IRA becomes its initial and sole member. Thus, based on the foregoing, we are of the opinion that the formation of the LLC with the IRA as its initial and sole member should not be a prohibited transaction within the meaning of Section 497 5( c) ( 1 )(A) of the Code.

Also in the present situation, any earnings generated by the LLC's investments will be distributed to the IRA as the sole member of the LLC. Such distributions will be directed by the IRA account holder as the non-compensated manager of the LLC. Pursuant to Swanson and the FSA, the payment of dividends to an IRA by a corporation owned by the IRA is not prohibited because the dividends do not become IRA assets until they are paid to the IRA. In addition, the only direct or indirect benefit that the IRA account holder realizes from the payment of dividends tq the IRA relate solely to his or her status as the IRA account holder. By analogy, Swanson and the FSA should apply to the facts of the present situation. Thus, based on the foregoing, we are of the opinion that distributions made to the IRA by the LLC at the direction of the IRA account holder as the non-compensated manager of the LLC, should not be a prohibited transaction within the meaning of Section 4975(c)(1 )(D) and (E).

Our opinion is based on the correctness of the following assumptions: (i) the LLC is duly organized and validly existing under state law and is qualified to do business in all states in which such qualification is necessary, (ii) the LLC operating agreement does not contain any provision that would cause a prohibited transaction under Section 4975 of the Code, (iii) no facts or circumstances exist that could cause the IRA account holder to benefit from any of the transactions other than in his or her capacity as IRA account holder, and (iv) no facts or circumstances exist that could affect the IRA account holder's best judgment as a fiduciary of the IRA.

If you're interested, the complete letter can be found by clicking here.

Any company can claim how legitimate and superior their Self-Directed IRA offering is. However, only the ones who have been thoroughly vetted by the experts of retirement law can prove their claims to be indisputable.

Don't settle in your pursuit to learn if your retirement money is safe with a Self-Directed IRA. Always be sure the company you're dealing with is up to all legal standards.

You can't afford to choose the wrong plan.


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