How I Formed My IRA LLC

I am pretty much quoting the Depriest  site verbatim. I will add that the first step I took was to find my IRA custodian. I am in Texas also.

What is a Self-Directed IRA LLC?

First, the LLC, Limited Liability Company, that you will form is not really an IRA LLC.  Rather it is simply an LLC that will eventually be owned 100% by your IRA.  As long as you don’t run afoul of the prohibited transaction rules, this is really no different than investing in any other opportunity such as stocks in a publicly traded company.  In our case, the IRA, NOT you will own all the units in the LLC.  The same prohibited transaction rules applicable to the self-directed IRA, apply to the self-directed IRA owned LLC.

So, in a nutshell, an LLC that is owned 100% by a self-directed IRA is deemed a single member LLC for tax purposes, which means that the LLC will not be required to file a Federal tax return. This is because all income of the LLC flows through the company to the owners of the company usually by way of a form K1.  Remember, you are not the owner of the LLC.  The self-directed IRA is only required to file a Federal tax return (Form 990T) if taxes are due (e.g. UDFI or UBIT).  I’ll try to explain these cases in a later post.

What are the steps in forming your LLC?

There are probably a thousand companies on the internet that will form an LLC for you.  Do a google search and you will see what I mean.  These companies will charge you anywhere from $49 to $1000 to do the paperwork and filings for you. In addition, you will still be responsible for paying the statutory fees in whatever state you set your LLC up in.  You can also have the work done by a local attorney, but that will probably cost you even more.  In my opinion, doing the work yourself is so simple, you should strongly consider doing it yourself.  That is what I did.

I live in the state of Texas, so that is where I decided to form my LLC.  You may want to check out the rules for filing in your own state or even in some business friendly state like Nevada.  Anyway, the following steps are valid in the state of Texas.

1. Choose a Name for Your LLC

Under Texas law, an LLC name must  contain the words the words “Limited Liability Company” or “Limited Company,” or the abbreviations “L.L.C.,” “LLC,” “LC,” or “L.C.” “Limited” may be abbreviated as “Ltd.” or “LTD” and “Company” as “Co.”

Your LLC’s name must be distinguishable from the names of other business entities already on file with the Texas Secretary of State. Names may be checked for availability by at the Texas Secretary of State website, which is called:  SOSDirect.

This website is not very user friendly and trying to navigate it can be tricky.  So, read the provided information if you want, and then click on the button at the bottom of the page to actually enter the site.

Once you are in the site, you will be able to request for SOSDirect Account.

Follow the on-screen directions to set up your account and then log in.

At this point, you should be able to click on the “Business Organizations” tab at the top of the page.  You will find yourself at a page that will allow you to check for the availability of the name you have selected for your LLC.  By performing this search, you can tell if the name you propose to use is currently in use, reserved, or registered by a corporation, limited liability company, or limited partnership filed with the secretary of state.  The name you choose must be unique.  Enter the proposed name, something like “DePriest, LLC” and press ‘Search’. You will know immediately if your chosen name is available or not.

There is a $1.00 statutorily authorized fee associated with each name search.  However, this fee will not be assessed if an order request is then placed on the results of the search.


2. File your Certificate of Formation.

A Texas LLC is created by filing a Certificate of Formation with the Secretary of State. I believe the easiest way to do this is by filing online, but you can also download the forms and fill them in by hand and then mail them to the Secretary of State.  Just as FYI, some people refer to this document as, “Articles of Organization”.  However, in Texas the proper term is “Certificate of Formation.

The certificate must include:

a.  The LLC’s name.  This is the name you just found using the search function on the SOSDirect website.
b.  The name and address of the LLC’s registered agent.  Every Texas LLC must have an agent for service of process in the state.  Usually this will be you, but it could also be your CPA or your Attorney, or other person who agrees to accept legal papers on the LLC’s behalf if it is sued. The registered agent may be a Texas resident or a business entity authorized to do business in Texas. The registered agent must have a physical street address in Texas. The LLC may not be its own registered agent.
c.  Whether the LLC will be member-managed or manager-managed.  It is very important that you select “manager-managed“.   You will appoint yourself as the manager of the LLC.  This is what allows you to retain control of the IRA funds and investments.
d.  The name and address of the LLC’s governing person and the name and address of the LLC’s organizer.  This usually you.
e.  The effective date of the certificate. I had my filing take place immediately.

That’s it.  The state will email your documents to you,  Just print them out and file a copy with your other important papers.  Whether you file online through the Texas Secretary of State SOSDirectwebsite, or by mail, the filing fee is $300.  If you use a credit card to pay the charges, there will also be a small convenience fee.

Congratulations.  You now have your LLC.


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