Do I Still Need a Custodian After My Check Book IRA Setup?
By Alisha Bennett
Clients are often confused about the role of the Custodian after their Check Book IRA is completed. Frequently, they will ask if a Custodian is still required after the LLC is active and ready to go. The short answer is YES: having an IRA Custodian who allows self-directed IRAs and ownership of LLCs/private equity is vital to your Check Book IRA creation and maintenance.
Essentially, the LLC is an asset of the IRA. Therefore, to garner the tax-exempt protection status of the IRA, the IRA must be in existence and held with a Custodian. The IRS rules state that you cannot be your own IRA Custodian unless you own an institution that qualifies (such as a bank or other financial institution which leaves most of us common folk out).
After the setup of your Check Book IRA, you will probably have a mostly hands-off, once a year relationship with your Custodian. Their role will mainly be to facilitate additional IRA/401(k) and/or contribution funds that you choose to move into your IRA-LLC, annual reporting of Form 5498 and helping you with any annual distributions if you’re of age.
Of course if the idea of working with a Custodian at all is frustrating to you, you can check out our Solo 401(k) plan which allows you to skip the Custodian altogether.
How much trouble is it to switch my IRA accounts to a Solo 401 K plan?
It’s an easy process to transition from an IRA LLC to a Solo 401(k). The easiest thing to do is set up the Solo 401(k), and do an in-kind rollover of the LLC’s ownership from the IRA into the Solo 401(k).
Nothing changes with the LLC, other than the fact that the ownership has been rolled into another retirement account (the Solo 401k).
Happy to answer any other questions you have; you know where we’re at 🙂
Are their restrictions as to who the LLC manager(s) can be?
For example, can I be the manager of the LLC owned by my spouse’s IRA? Can we both be managers? Unpaid of course.
There are no restrictions on who the Manager may be for any given LLC, so long as the Manager does not deal with the assets of the LLC for his or her own benefit. You are right as well, to point out that it is an unpaid position. So, no issue with you being the sole Manager or a co-Manager of your wife’s IRA LLC.
If a set up a new IRA, do you still have the same ageing restrictions that It has to be in existence 5 years before a withdrawal? Do the same rules for checkbook IRAs apply to a ROTH IRA?
If you’re opening a Roth IRA to do an IRA LLC, then yes, the same rules apply to that new Roth IRA. Keep in mind that if you already have a Roth IRA that has met the 5 year rule, then any new Roth IRA you open will meet the 5 year rule as well. In other words, the 5 year rule is not per Roth IRA, but a seasoning period to the taxpayer; once the taxpayer meets that 5 year seasoning rule with one Roth IRA, then all his Roth IRAs are “seasoned”.