Series LLC – Okay for Solo 401(k) Pensions? | USTaxAid

Diane Kennedy's Blog

Series LLC – Okay for Solo 401(k) Pensions?

Written by Diane Kennedy, CPA on January 17, 2012


I’m seeing strong interest in Series LLCs these days. Real Estate investors are coming to the Series LLC in numbers, fascinated by the idea of having solid asset protection without paying to form and maintain multiple state entities. Business owners are also looking at the Series LLC as a great way to start multiple businesses, or create separate business identities quickly and easily, and without spending thousands in legal and filing fees.

Recently, Series LLCs got another boost – this time in terms of acceptance by a pension custodian, in connection with a Solo 401(k) plan.

Using an LLC to manage your self-directed Solo 401(k) plan is nothing new. The strategy works like this – basically, you invest pension funds into the LLC, and use those funds through the LLC to invest in real estate, business ventures, and so on. The profits flow back through the LLC to your pension fund and grow, tax-deferred (or tax-free, if you’re using a Roth). You are allowed to act as the Manager of the LLC, making high-level decisions, including where and when to invest that money. The LLC structure keeps you from direct contact with your pension funds (making the IRS happy) and the fact that you make only high-level decisions (i.e., you can decide to fix the roof on a rental, but you can’t swing the hammer) keeps you safe from accidentally getting caught up in the headache of prohibited transactions.

The Solo 401(k) LLC has been a great strategy for seasoned investors, who know what they are doing, and who need to act fast. But up until now, there has always been a question on whether or not you could use a Cell in a Series and make that Cell act as the Solo 401(k) LLC. Remember, even though Series LLCs have been around for 14+ years now, they aren’t accepted in every state, and in legal terms, they’re still a newborn. That means the Series receives very conservative treatment, particularly in the hands of banks (who just don’t seem to get it). But at least as far as one major Solo 401(k) plan custodian is concerned, all is well.

If you want to learn more about how the Series LLC operates, check out our product, Series LLC: the Ultimate in Business Structure Flexibility. And, to learn more about pension investing, especially how you can self-direct your own pension, try our book, Insider’s Guide to Tax-Free Real Estate Investment.

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