FORM A SPECIAL PURPOSE LIMITED LIABILITY COMPANY FOR SELF-DIRECTED 401(k)
THANKS FOR INQUIRING!
Just think - you can form a Special Purpose LLC for Self-Directed 401(k)
right over the Phone, or Online. It's easy. It's quick.
And you'll save a substantial amount of money.
|OUR GOAL—YOUR Complete Satisfaction and UnderstandingOur goal is to provide each of our clients with as much information as possible about starting a Special Purpose LLC for Self-Directed 401(k). As you will see as you review the following material, there is a lot of information to digest and consider. Many legal aspects may be complex and confusing. We want you to know we are available to speak with you about any legal aspects of the formation of your Special Purpose LLC for Self-Directed 401(k) at your convenience either over the telephone or in person at the Spiegel and Utrera, P.A., office nearest you. |
WHAT IS A SPECIAL PURPOSE LIMITED LIABILITY COMPANY FOR SELF-DIRECTED 401(k)?
Why limit your 401(k) investments when you can have self-direction? This strategy involves forming a single-owner limited liability company (“LLC”) with a 401(k) Plan. Plan funds would be used either to purchase real estate or other assets directly or to create a holding company which in turn would purchase such assets. When you are the Operating Manager of the LLC’s 401(k) Plan, you have “checkbook control”. That means that every time you are going to invest in a new asset or property or form a holding company to invest in assets or property, you are not required to have the plan custodian approve the transaction.
We will form your Special Purpose LLC for Self-Directed 401(k) Account under the personal direction of a qualified attorney who makes certain that all requirements are met.
Let us explain:
The operating agreement for your LLC would allow your self-directed 401(k) Plan to choose what you would like to invest your money in. The operating agreement for the Special Purpose Limited Liability Company for Self-Directed 401(k) Account has to comply with the Internal Revenue Code, Employee Retirement Security Act of 1974 (ERISA) and corresponding regulations.
A special purpose LLC formed for a self-directed 401(k) must have a Operating Agreement that must include:
PROHIBITED TRANSACTIONS (see IRS Publication 590 for further information)
- language regarding Prohibited Transactions as defined by IRC Section 4975;
- language regarding the potential or the avoidance of Unrelated Business Taxable Income (UBTI) and, if incurred, that the manager will complete and ensure the timely filing of all relevant tax returns to the IRS and state authorities;
- language regarding additional capital contribution(s) and whether they are allowed or disallowed; if allowed, the agreement must state that: “Subsequent investments by the single member are permitted and do not create a prohibited transaction under IRC Section 4975;
- the participant (you) as a member in this form only: for example: Your IRA Services Company, Custodian FBO, your name as participant;
- a signature line for the Custodian;
- the Operating Manager and provide contact information for the Custodian;
- you, the participant, may act as the Operating Manager. The Operating Manager must sign the Operating Agreement, the Custodian will sign on behalf of the Member.
A prohibited transaction is a transaction between a plan (the LLC) and a disqualified person that is prohibited by law.
Prohibited transactions include, but are not limited to, the following transactions:
- a transfer of plan income or assets to, or use of them by or for the benefit of, a disqualified person;
- any act of a fiduciary by which plan income or assets are used for his or her own interest;
- the receipt of consideration by a fiduciary for his or her own account from any party dealing with the plan in a transaction that involves plan income or assets;
- the sale, exchange, or lease of property between a plan and a disqualified person;
- lending money or extending credit between a plan and a disqualified person;
- furnishing goods, services or facilities between a plan and a disqualified person.
A disqualified person is any of the following:
- you, the owner, of the plan (401(k));
- a member of your family (i.e., your spouse, ancestors, lineal descendants and their spouses);
- the Custodian/Administrator of the plan;
- any person providing services to the plan;
- any corporation, partnership, trust or estate in which you own (either direct or indirect) 50% or more;
- an officer, director, 10% or more shareholder, or highly compensated employee of the 50% or more owned entity described above.
You should also be aware that most self-directed IRA and 401(k) custodians will not allow the 401(k)’s to make foreign investments. Their thinking is that these types of investments may become extremely difficult to value in the IRA or 401(k), therefore, they do not allow foreign investments. Bear in mind that there is nothing in the IRS Code that precludes foreign investments. This is simply a practical decision that the custodians make and you should be aware of this situation because you should be mindful of some of the potential difficulties in valuing foreign investments.
The cost of the Spiegel & Utrera, P.A. Special Purpose LLC for Self-Directed 401(k) is just $554.90 for up to 4 members, additional members are $50 each if ordered at the time of forming your LLC and, as an additional bonus, it includes the required Special Purpose LLC for Self-Directed 401(k) Operating Agreement.
When forming any Company, we strongly recommend the owners obtain the maximum protection permitted by current Laws. One of the best ways to protect yourself is to enter into an Indemnification Agreement at the time of formation of your LLC.
For example, you may include in your Articles of Organization a special provision to protect the Managers from any actions they take on behalf of the LLC called an Indemnification clause. Basically, the LLC agrees to indemnify and hold harmless its Operating Manager(s) (those who act as agents of the LLC and represent the LLC’s interest in day to day business transactions).
Once the Indemnification Provisions are in effect, the LLC would be responsible should there be any legal action taken against its representatives. In other words, the LLC would have to pay any legal fees or liabilities assessed against its Manager.
FORM YOUR SPECIAL PURPOSE LLC FOR SELF-DIRECTED 401(k) ONLINE NOW!
Information and Services for the success of your business from Spiegel and Utrera, P.A.:
Starting a business is hard work. Creating a successful business is even harder. Don’t let your business fail before it even gets off the ground. Let Spiegel & Utrera, P.A. help jump start your new enterprise and put you on the road to success. Scroll down to see valuable business information and all of the start-up services that Spiegel & Utrera, P.A. provide. Click on any of the links below to jump to that section.