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A self-directed IRA LLC is not just about having more flexibility when it comes to investing. Like any other IRA account, you can make new contributions to the IRA and receive a tax benefit as a result.

Many people who want to make IRA contributions simply wait until tax time and make a single contribution to their IRA. That certainly works, but requires that you have the liquid cash to make that contribution in March or April, which can sometimes be a challenge.

We thought we would take this opportunity right after the frenzy of tax season to share a few tips and best practices for making IRA contributions and maximizing the tax-benefits of your Checkbook IRA LLC.

Ensure you are Eligible to Make IRA Contributions

  • You must be under age 70 ½ and you must have earned income in order to contribute to an IRA.
  • With a tax-deferred Traditional IRA, you can contribute up to the limit, which is $5,500 for those under age 50 or $6,500 for those 50 and older.
  • However, you may not be able to take a tax-deduction for your contribution if you have access to an employer plan like a 401k and/or have earned income over certain thresholds.

IRS IRA Contribution Limits

With a Roth IRA, the limits are the same, but there are separate sets of income limitations that determine your ability to make contributions to a Roth account. See the IRS website for basic guidance and consult with your licensed tax advisor to understand the specifics of your situation

Have a Regular Savings Habit

It is a lot easier to come up with cash for an IRA contribution a little bit each month than all at once at tax time. You don’t have to directly contribute to the IRA each month, but it can be helpful to squirrel away some money in an account that you have flagged for contributing to the IRA.

Combine Contributions Every Other Year

You can make IRA contributions from January 1st of a tax year until April 15th of the following year. The window between January 1st and April 15th provides the opportunity to contribute for the prior year as well as the current year.

If you do not have a specific investment goal in mind, and just want to be having a regular habit of contributing to your savings, this is a trick that can save you some paperwork and fees on getting funds into your IRA LLC.

Alternately, if you do have an investment you would like to make and need more capital available, you can take advantage of this window in the 1st quarter of the year to double-up on your contributions if you have not already contributed for the prior year.

Mind the Fees

When you make contributions to your self-directed IRA account held by the custodian, there is no charge. When you have that IRA capital invested into the LLC, however, there is a $40 fee to document the transaction and mail a check to the LLC. There is an additional $25 fee for having funds wired to the LLC. As such, it does not make a lot of sense to make contributions to the IRA and have those funds invested into the LLC each month.

Keep Your Money Working

Whether you are contributing directly to an IRA or putting money in some other savings vehicle, it is beneficial to keep that capital actively deployed. This is one challenge we face with the IRA LLC structure, since you really do not have many options for investing money until it has been placed into the LLC. Funds held in the IRA account with the custodian are typically going to be in a cash account that pays limited interest.

As noted above, however, getting money from the IRA to the LLC involves a $40 transaction fee. So, one or two contributions a year are not bad, but one a month would be inefficient.

Often times, it may make sense to accumulate planned contributions outside the self-directed IRA system, then add this to the IRA LLC on a periodic basis as needed. If you are accumulating capital in a regular savings or stock account, you would want to make IRA contributions to your self-directed plan annually or every other year in the 1st quarter as noted above.

You could also choose to maintain a separate IRA at a mainstream brokerage and contribute on whatever schedule fits your needs. Then, if you have an opportunity in your self-directed IRA to put more money to work, you can execute an IRA-to-IRA transfer of any amount within that IRA at any time.

Don’t Wait Until the Last Minute

Tax time is the busiest time of year for IRA institutions. Be sure to leave plenty of time for funds to be received and deposited ahead of the contribution deadline.

If you are moving funds from one IRA to another, the transfer process can take anywhere from 2-3 weeks.