Self-Directed 401(k) LLC

The Solo 401k LLC has two separate, but related, parts. They are the ability for an entrepreneur to establish their own retirement fund, and the ability for anybody with a retirement fund to invest in an LLC. Qualified retirement plans (401k, IRA, TSP, etc.) are commonly associated with employers and traditional brokerage investments. That is, your employer contributes, except in the case of an IRA, and you invest in stocks and bonds. This conception merely scratches the surfaces of what is possible.

Setting up a 401k for your own benefit is surprisingly easy. All you need is a company, even a brand new one we have just formed for you. The benefits of such an arrangement are:

1. Higher contribution limits of $54,000+
2. Contributions are tax-deductible
3. Earnings compound tax-deferred
4. The ability to invest in an LLC

Existing retirement accounts can also be rolled into the 401k we set up for you. Once the 401k is funded, you will invest the 401k in a Wyoming LLC. This turns your retirement fund into an investment vehicle with advantages such as:

1. Significantly lower taxes
2. Freedom to invest as you see fit
3. Better asset protection than a traditional LLC
4. No need for a custodian or a trustee's permission - and thus no fees

Two reasons for pursuing this arrangement are wider latitude investing and the ability to bypass a custodian. The process is simpler than you would think. Most clients can begin investing in fewer than two weeks. Here are just a few of the ways you may invest your Solo / Self-Directed 401k LLC:

1. Real estate and rental properties
2. Loan money to yourself or other businesses
3. Invest in precious metals
4. Tax liens
5. Stocks, bonds, mutual funds etc.

Need more flexibility than a traditional retirement account can provide? Then you may want to consider establishing a Wyoming asset protection trust.

When you hire us, the method is relatively straightforward. We will put you in touch with Advanta IRA which can assist with rolling over your existing account and forming your new 401k. We will then create an LLC wholly owned by the 401k and help set up your bank account.

Generally, the operating agreement of a Self-Directed 401(k) LLC must contain specific sections pertaining to “Investment Retirement Accounts” and “Prohibited Transactions” as dictated by IRS Code Sections 408 and 4975. Further, it must be a "Manager Managed" limited liability company. For the remainder of this paper, I will refer to an IRA and 401 as you’re your “IRA” or “tax-deferred fund.”

Some Important Things To Remember

These things may seem self-evident, but it is easy to get confused about these issues and confusion leads to mistakes.  The entire tax benefit depends on these facts.

Now, please remember the following: For single member LLCs, such as your tax deferred plan, the Operating Agreement is of little practical use.  It is only an agreement with yourself, which means you can change it at any time for any or no reason.  In fact, in Wyoming, you are not required to have one.  The bottom line is:  “It is not what you say, but what you do, that is important.”

For example: You could include a line item in your Operating Agreement that states you will not engage in any “prohibited transactions”; however, if you are found to have dealings with a disqualified individual, you will still be in trouble, regardless of what you wrote in the Operating Agreement. In fact, it may even go worse for you because the Operating Agreement will demonstrate that you were aware of the infraction beforehand.

You need the Operating Agreement for two reasons:

• Your bank will require you to provide them a copy when you set up the LLC account
• Your custodian will require you to provide them a copy when they set up the Self Directed IRA Account

Rules specific to a Self-Directed IRA or 401K

The primary way that an Operating Agreement for a Self-Directed IRA with checkbook control differs from a standard LLC Operating Agreement is how the IRS rules for Self-Directed IRAs and 401Ks are handled. If you don’t follow the rules, you can risk the tax-deferred status of your account. This could lead to the disqualification and result in severe tax consequences.

Here is what you need to know: At a minimum, your Operating Agreement must contain language to handle the following:

Prohibited Transactions and Investments:  This is basically self-dealing and certain investments such as collectibles.

Disqualified Individuals: You may not buy an investment from or sell an investment to a “disqualified person.”  You and your family members are disqualified individuals.  The list is longer for IRS purposes, but these are the primary disqualified persons.

Indirect Benefits: The purpose of your pension is to provide for your retirement in the future. It is considered to be an “indirect benefit” if your tax-deferred fund is engaged in transactions that, in some way, benefit you personally today.

UBIT: This is a tax that occurs when leverage is used to develop profits in investments.