Transfer Roth IRA to a Holding Company or LLC?

[Guest star]

Is it possible to transfer management of your Roth IRA to a Holding Company or LLC?

IOW, what restrictions are placed on where the funds can go?

Are there any allowable secure or confidential ways of keeping the IRA?

Many thanks in advance for your advice.

[John G]

I am not sure I understand what you want to do. For example, what do you mean by "keeping the IRA". Holding companies and LLCs come in so many versions that there are clearly some that serve as custodians... but I am not sure what difference the business structure would make. Perhaps you can post again about what you are hoping to implement and you level of investment knowledge.

In general.... Roths and IRAs operate under the fiduciary role of a custodian. You can't be your own custodian. Some financial institution must play that role and report to the IRS your contributions, rollovers, distributions, etc. Common custodians are mutual funds, stock brokerages and banks.

Selection of a custodian is a seperate issue from who makes the decisions about your investments. A very large part of the population have self directed IRAs or Roths - meaning that they make many or all of the decisions about investments. In the era of Google, brokerage/fund screening tools, internet financial sites and a wide array of printed sources such as the WSJ, Money magazine and hundreds of advisory newsletters - the trend (for better or worse) is towards greater self-help.

Yes, there are some boutique operations that will support more exotic investments that stocks, bonds, mutual funds and money market accounts. But... there are still tight rules to prevent abuse and the fees/expenses are higher.

[Guest star]

Thanks for your good answer.

Here is what I am planning to do. Register a trust or LLC in Delaware and nominate this entity as custodian of the IRA. The IRA is currently being held by a brokerage in the name of the beneficiary.

Investment decisions aren't the isssue here. I want to remove the name of the beneficial owner from the brokerage account and conduct the investment activities in the name of the custodial entity. How can this be done?

Many thanks for your advice.

[BPickerCPA]

An entity has to be preapproved by the IRS in order to be an IRA custodian.

The other parts of your message are both disturbing and confusing. If the account is held in the name of the beneficiary, then it has to already be an inherited account.

You can't remove the beneficiary's name and replace with the custodian's. That sounds like the tort of "conversion" (not to be confused with Roth IRA conversion).

What is your relationship? Are you the IRA owner? The beneficiary? The financial advisor?

[Guest star]

BP, thanks for the clarification. Please bear with me as I'm researching this for the first time!

Do you know where I can find info on getting pre-approval for IRA custodianship?

If the account is held in the name of the beneficiary, then it has to already be an inherited account.

In this case it isn't an inherited account, so if I understand correctly it must only be held in the name of the IRA owner (myself)?

[Demosthenes]

The custodian of an IRA is usually a bank or another financial institution with sufficient controls, capital, infrastructure to prove to the IRS that they won't screw up the process. To be a "Custodian" is an arduous process that can take 6-12 months. Becoming the "Custodian" is usually not a viable solution for an individual.

IRC 408 (h) Custodial accounts

For purposes of this section, a custodial account shall be treated as a trust if the assets of such account are held by a bank (as defined in subsection (n)) or another person who demonstrates, to the satisfaction of the Secretary, that the manner in which he will administer the account will be consistent with the requirements of this section, and if the custodial account would, except for the fact that it is not a trust, constitute an individual retirement account described in subsection (a). For purposes of this title, in the case of a custodial account treated as a trust by reason of the preceding sentence, the custodian of such account shall be treated as the trustee thereof.

I guess I'm fuzzy about your objective, what is it that you are trying to accomplish?

[mbozek]

The IRS has only approved about 230 custodians to hold IRA assets. A custodian must meet certain financial requirements set by the IRS. Individuals cannot be approved to act as an IRA custodian. The only thing you can do is find a IRA custodian who is willing to hold the ownership interest of a LLC (e.g.shares of stock) in the IRA account. Custodians who hold odd assets that are not publicly traded will charge a substantial premium to IRA owners as a custodial fee.

[John G]

I still don't know what you are trying to attempt. That you have trouble explaining your goals/intent and have some trouble with the terminology suggests that you are trying to do something novel. The answer is probably a simple one - you can't do it.

Custodians have a fiduciary duty. They have reporting requirements. The list of custodians probably does not include much beyond the banks, brokerages and mutual funds. I think you can completely rule out that any individual, small group or recently formed entity would be allowed to become a custodian.

Perhaps you are suggesting this approach due to privacy issues. If so, I can't imagine you want more privacy then the recently passed laws. You are more likely to tell the world about what you do on the basis of what you throw out in the trash then what a custodian will say about your account without a court order.

[Guest star]

Thanks for these answers. Perhaps what I was thinking may not be possible.

Yes, privacy is certainly one of the reasons as is asset protection. I may be looking for a structure that is best suited for confidentially and securely maintaining the assets in trust for another individual.

If anyone knows specifically what the possibilities are, and where I can go for more info, I would be grateful for the tip.

Thanks.

[Demosthenes]

If privacy and asset protection are your objectives, Private Banking may be a fit. This kind of wealth management service is kind of out of scope for BenefitsLink, but a quick Google of Private Banking turned up

Credit-Suisse

J P Morgan

Bank of America

Boston Private Bank

HSBC Private Banking

Just a couple of quick notes,

First, I am not associated with, nor do I have a financial interest in, the companies listed above. They are just the results of a search.

Second, most companies offering private banking, sometimes referred to as "family office services" have 6 or 7 figure minimums to qualify for this level of service. Those numbers have been coming down as technology makes it cost effective to offer higher service levels for lower accumulated balances.

Finally, there are a number of sites and individuals that will try to convince you that off-shoring assets is the way to go for privacy and asset protection. The pros and cons of this approach would fill a text book.

The only answer is to do your own due diligence.

[Alf]

The practical answers to your questions are:

IRAs can only be established in the names of individuals;

Custodians have annual reporting requirements to the IRS, so the government will know the SSN of the beneficiary;

I don't even think it is possible to hold one through a "blind trust" for political or conflict of interest purposes, but I suspect that is not the type of privacy you had in mind;

Asset restrictions are pretty small, but I don't think foreign situs assets are permitted in most cases which is what I suspect you had in mind;

These are highly regulated tax-favored investments, so I doubt that it is what you want. Without offending you, I wanted to mention an old tax saying that may apply: "pigs get fat, hogs get slaughtered."

[Guest star]

No offense taken whatsoever. All information is great to have.

[GBurns]

star,

Many posters, and I am sure many readers, are wondering what you are trying to accomplish, but for some reason you have not explained.

Privacy should not be an issue since you are anonymous and have provided no info in your profile. Therefore no one knows who you are and would not be able to find out from the given info.

I am suspecting that you have been approached with one of the many schemes promising special investments and increased wealth through the use of Self-Directed IRAs channeled through ESOPS (or by some other similar sounding name) or LLCs which then invest in real estate, S Corps, Forex, gold etc while giving you "check book control". You seem to possibly have some interest but are looking for a variation on the themes.

If you explain better what it is that you really have in mind, why and what you hope to accomplish, you should get much better answers especially addressing the pitfalls of some of these schemes.

No one here, as far as I know, will be able to sell you anything, so what you will get is a discussion of the issues and learn whatever it is that any of us have learned about these schemes along with what we think about whatever you explain to us, free of charge.

[John G]

And besides our own curiosity...... folks who post here often have little experience and we don't want to encourage quick buck schemes, "can't go wrong" or various pot of gold concepts. There seems to be some compelling need for many folks to look for shortcuts to wealth building. While there are some ways that if you are in the right place, right time and possess the right knowledge you may be able to fast track your results - for the average Joe, that is extremely unlikely.

So... we normally try to wrap up a thread rather than leave it open. The last thing I want to do is to suggest there are "secrets" that we are hiding, or some great method for rapid arrival in wealth central.

I am not sure why you feel that normal custodian relations with an instution that must meet US financial privacy laws would be a problem. Have you tried to call a bank and ask about your parents accounts lately? Or gone to a brokerage asking for a copy of the last monthly statement of a deceased persons. Most institutions are very nervous about what they communicate, so they will tell you next to nothing. Yes, you are still open to prying eyes of any clerk that has access to the computer system.... but that is probably more an issue with identity theft.

[Guest star]

Rest assured I'm not interested in any of these get rich schemes or tax evasion scenarios you guys have mentioned.

I am concerned more that wife or other creditor will lay claim to the assets, use investigation to locate them and court orders to seize them.

I don't believe that the U.S. privacy laws are able to prevent people finding information about any accounts listed under an individual's name.

I should also add that from the point of view of asset protection it might be preferrable to designate another individual as beneficiary, although I do not know about the rules and restrictions that would govern doing so.

Again, many thanks for all of your advice and comments. I appreciate the diversity of views and perspectives in this forum!

[GBurns]

In todays information society it is almost impossible to hide assets from a determined searcher who already has the basic info and who has discovery rights. And when it is possible, the costs, risks and penalties quite often outweigh the benefits derived. It does not matter whose name an item is in, the source is traceable very often so designating another individual doesn't help much and is risky and expensive.

[mbozek]

Protection of IRA assets are subject to two separate sets of laws: state laws which may protect the IRA from creditors (NY, NJ) and federal bankruptcy law. The US supreme ct will issue a decision later this year as to whether IRA assets are exempt from the claims of creditors under fed. bankruptcy law. IRA assets are subject to division under state divorce laws. Designating anther person as the bene does not effect whether the assets are subject to claim of creditors /wife because the assets are the property of the the IRA owner.

[Guest star]

IRA assets are subject to division under state divorce laws.

Is that equally true for all states? Where can I find differences?

Designating anther person as the bene does not effect whether the assets are subject to claim of creditors /wife because the assets are the property of the the IRA owner.

Interesting. I thought it was possible for IRA owner and spouse to declare another person as 100% beneficiary of the assets. Perhaps I do not fully understand your answer?

[GBurns]

Declaring another person as beneficiary still does not change the ownership of the asset.

Even if there was a state that does not divide, Changing to another state would most likely involve having to meet those residence requirements and their taxation, which might negate any benefit from doing so. Doing so might also affect ownership etc of other assets and the taxation etc of those assets (eg deductibility of mortgage interest on primary residence vs second residence ). It might also affect not only existing mortgages and loans but also any new ones (eg your primary residence mortgage might require owner occupancy and the new home be regarded as investment property and financed at higher rates etc). In any case a change of state might possibly be construed as a fraudulent transfer or otherwise and might in litigation be restored to the original state. It most likely would not be worth the effort.

[mbozek]

Star- you need to retain counsel for those questions. The determination of what assets are includible in divorce actions depends on state law. In most states an IRA that is not inherited is considered part of the assets of marital estate for divorce.