What are the risks associated with using an LLC in a self directed IRA?
The biggest risk is the potential to create a prohibited transaction. There are certain rules and regulations regarding IRA transactions that, if violated, can invalidate the IRA, resulting in taxes and penalties. Most IRA custodians are familiar with these rules and will inform their clients when they see them about to commit a violation. Although, by contract, a self directed IRA owner is solely responsible for avoiding a prohibited transaction, custodians will try to offer their input if they see the potential for a prohibited transaction. When an investor, therefore, takes the transaction processing away from the custodian, through the creation and funding of an LLC, they reduce the level of scrutiny that could help avoid an inadvertent violation of the rules. Investors would be advised to seek the counsel of one of the tax attorneys at Stephen Counts, PC, who can assist them and help them to avoid potential problems.
