a Roth account 'own' an LLC?
I am using a self-directed Roth through Mid Ohio
Securities to buy and sell real estate. I can buy unregistered securities
in a corporation or invest in a limited liability company with my
Roth now. Could I have the Roth own an LLC that I use for conducting
business and see the profits pass through to the Roth? -- JS
A Roth IRA is a great investment tool, made only better
if you can invest in your own company and later sell that company
tax-free and live off that money tax-free.
I just worked with a client who was acquiring the
stock of a business, and we structured it so that his Roth IRA actually
bought the stock. The acquisition was 70 percent bank financed and
30 percent purchaser financed. The company actually took on the
amounts as debt and used the cash to redeem the stock of the seller.
The Roth IRA acquired a nominal interest in the company since it
didn't have a lot of funds in it, but once the other stockholder
was redeemed, the Roth wound up with around 95 percent of the stock.
Due to some technical rules that the IRA custodian
and an advising attorney provided an opinion on, a sibling of the
purchaser acquired the remaining stock. The sibling was necessary
to avoid prohibited transactions with the IRA. The stock was in
a conventional corporation but an LLC can be taxed as a conventional
corporation. I don't believe the Roth can or should own an LLC taxed
as a partnership because flow-through from the partnership can cause
There is scant legal precedence or IRS guidance on
this issue, so I suggest you find a good attorney and IRA custodian.
My client used Pensco out of San Francisco as the IRA custodian
and Pensco recommended the attorney.
A word to the wise: not every thing is guaranteed
here. But measure the outcome against the downside and have a good
accountant involved with all the parties to the transaction.
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