IRA Investing in a LLC

[Guest PB&J]

I am so new to this area that I am not even sure how to pose the question...but here goes: Can a person have an IRA and invest that IRA in an LLC. The LLC will be a new company owned by two entities: 1) The IRA will own 40% of the LLC and 2) a Limited Partnership will own the remaining 60%.

As if that wasn't complicated enough, here is the kicker -- the IRA owner's spouse has a small ownership percentage (less than 50%) in that Limited Partnership.

Is this scenario possible?

[Guest GOM]

Check the following web site for information:www.guidantfinancial.com

[Guest Pensions in Paradise]

PB&J - you need to consult with qualified legal counsel. DO NOT rely on the website provided by GOM.

[John G]

The Guidant website is way way too simplistic. The IRS does not give a tax payer carte blanche to contrive any scheme they would like for their Roth. There are all sorts of rules on self dealing, ownership interests, maximum allowed contributions, types of investments, etc. that have been put in place because of Congressional guidance, historical precedent, auditability, and fraud provention (to name just a few). Often custodian will have additional restrictions that go beyond IRS rules.... generally for good reasons, especially when considering how the majority of taxpayers invest. Remember that Guidant is in the business of selling services, I don't see anywhere on their website that they will hold you harmless for stupid advice or illegal practices. Frankly, there was little "beef" at Guidant, mostly you get promotional statements. I saw no cautionary remarks about how some of their proposals could lead to a Roth being ruled invalid. And, no info on their fees.

For all of the above reasons, I concur that you need to find a tax lawyer and tax accountant (maybe more than one) who are knowledgeable about what you might propose. They are going to ask lots of questions. If they don't like your answers, they will not endorse you proposal or sign your tax returns. Unlike a website, professionals have fiduciary duties and professional standards and are therefore a lot more accountable. If they suggest that you sign a "waiver" that your proposal is completely your idea.... hint, hint.... they don't plan to be held liable if the IRS rules the activities violate the rules and declare your entire Roth to be a taxable investment account. It can and does happen. So, spend some money and find local professional help before proceeding. There are legal ways to do many kinds of investments, but get someone local with experience to clearly define the boundaries, potential risks, etc.

You did not provide enough specifics for anyone to confidently answer your question.

Beyond that, I did not find a convincing arguement in your post for such a complicated arrangement. Often, you do not want your job and your retirement assets to be based upon the same business. Ask the Enron employees about the wisdom of all your eggs in one basket. What kind of partners would let a Roth hold 40% of the business. Is this a scheme to artificially goose the returns of the Roth. Perhaps your intention is to use your Roth as a source of funds, to keep your foot in the door so to speak. In a time when money is "on sale" and home equity loans, six digit signature lines of credit, refinancing and other sources of capital outside of Soprano's loan sharking.... why tap the Roth?

You may want to study some of the responses on the following thread:

http://benefitslink.com/boards/index.php?showtopic=30552

This fellow wants to start a hedge fund with the Roth owning a part....

These types of proposals raise major questions about their legality. It is highly unlikely that you can completely post all of the details to support an accurate response. This is why you will get multiple suggestions to find local professional help.