The factors to consider are:

1. Your age
2. Your contribution and deferral capability
3. Whether you have common-law employees
4. When you wish to retire
5. Your tax situation

Most people seek to make the highest contribution to their retirement plan that they can. Then they choose the plan that gives them the most flexibility.

In any event, you should also seek the services of one of the tax attorneys at McLaughlin & Quinn, LLC or other tax professional to assist you in the proper selection of the plan best suited for you.

A limited liability company (LLC) is a form of doing business.  Unlike more common “C” and “S” corporations, investors or owners of LLCs are called members and not stockholders or partners (partnerships), and their investments are called membership interests and not shares (stock) or units (partnerships). 

LLCs are rapidly gaining favor for their following important features:

1. They are pass-through entities like partnerships so that profits and losses pass-through them without tax to the underlying members who are taxed at their appropriate tax rates;
2. They provide a “limit to liability” as no member is liable for the debts of the LLC and the member’s liability, therefore, is limited to the amount of their investment in the LLC;
3. "S" Corporations are not permitted to have IRAs as shareholders. LLCs have more flexibility than “S” corporations (e.g., LLCs can have two types of memberships unlike “S” corporations which can only have one type of stock). In addition, there are some of the legal formalities (such as required meetings and minutes) that apply to “S” and “C” corporations that do not apply to LLCs. However, although all 50 states have LLC structures, there currently is no uniform LLC legal definition, and it is therefore important to check the requirements for your state’s LLC structure;
4. Dividends are not taxed twice as with “C” corporations;
5. With the exceptions of the District of Columbus and Massachusetts, there is not a limit or minimum number of investors;
6. Unlike “S” corporations, you can have individuals and other entities (including an IRA) as members;
7. They offer flexibility in the distribution of profits and losses unlike "S" and “C” corporations.

The first LLC agreement was created by the State of Wyoming in 1977, and when partnership tax status was granted by the IRS in 1988, all states created them. By 1998, LLCs were universal. They can be formed quickly and inexpensively, and are not taxed as entities in most states. It is important to be sure that the LLC operating agreement contains the language necessary for the LLC to receive pass-through tax status like a partnership, and for that reason alone, the operating agreement should be formulated by an attorney familiar with state and federal law regarding LLCs.

When you are:

1. Concerned with tax liability and are not running a business with your IRA;
2. Interested in reducing otherwise legally required documentation of ongoing corporate activities such as minutes;
3. Desiring flexibility in the number and type of potential members including individuals, other corporations, trusts, pensions, IRAs, and foreigners;
4. Interested in limiting the exposure to liability claims to the amount of your investment.

For all of the above reasons, LLCs are becoming very popular as investment vehicles for people who have self directed IRAs and who want to obtain more flexibility and control with their IRA investments.  The attorneys at McLaughlin & Quinn, LLC help individuals establish and operate LLCs for their investments within self-directed IRAs.  Frequently, these proprietors refer to the LLC’s ability to provide so-called “checkbook control” to the IRA investor.  This is meant to describe the IRA investor’s ability to write a check from the LLC’s checkbook when buying investments within the LLC.  This not only gives complete control to the investor, but eliminates the need to have to go through the IRA custodian for processing, which can result in extra time and costs.

1. Unsecured Loan between an IRA and an Individual
   When an unsecured loan is between an IRA and an individual, it is only the reputation and creditworthiness of the borrower (individual) that the lender (IRA) is relying on for repayment.  As a result, unsecured loans are much higher risk than secured loans and for this reason they are most common between family and friends.  With IRAs, however, there are restrictions for certain intra-family transactions (click here for prohibited transactions).
2. Unsecured Loan between an IRA and an entity (LLC, C-Corp, etc.)
   Unsecured loans between an IRA (as the lender) and a corporation (as the borrower) are even rarer than personal loans, because an entity doesn’t have to stake its personal reputation on the line.  However, such loans are more vulnerable to lawsuits in the event of default.  In addition, care must be taken to avoid lending to a company that is owned 50% or more by "disqualified persons" (e.g. direct relatives and the spouse of the IRA owner and including the IRA owner's personal stake in the entity at the time of the IRA's investment).

• Ease of management. Holding a brokerage account in your self directed IRA allows you to view your entire retirement portfolio at once, and to receive consolidated statements.
• Speed of transfer. With the trading account inside the self directed IRA, funds can be moved quickly and easily between traded (or public) investments and non-traded investments such as real estate or private placements.
• Cost Effectiveness. Because the need to transfer funds between institutions is eliminated, certain fees may be avoided.
  
  

1. You cannot personally guarantee a loan for your IRA;
2. It may be difficult to get a bank to allow an IRA to be the debtor without a personal guarantee.  However, there are now some banks that specialize in loans to IRAs.  Currently, the typical minimum IRA down payment for such loans is 30%, although the exact amount is up to the lender;
3. Your IRA will pay tax on UDFI (Unrelated Debt Financed Income), which is the income and/or capital gains attributable to the leveraged portion. (UDFI is taxed at the trust tax rate because an IRA is treated as a trust for this purpose.)

Whenever debt is used by a tax-deferred or tax-exempt entity (with some exceptions), tax is applied to that portion of the gain that is debt-financed.  This income is called unrelated debt financed income or UDFI, which is a subset of UBTI.  Taxes on both are calculated and reported on IRS form 990-T.

Any property held to produce income is debt-financed property if at any time during the tax year there was acquisition indebtedness outstanding for the property.  When any property held for the production of income by a tax-exempt organization or IRA or Roth IRA is disposed of at a gain during the tax year, and there was acquisition indebtedness outstanding for that property at any time during the 12-month period before the date of disposition, the property is debt-financed property.  In general, average acquisition indebtedness for any tax year is the average amount of the outstanding principal debt during the part of the tax year the property is held by the entity or IRA.

To calculate the average amount of acquisition debt, determine the amount of the outstanding principal debt on the first day of each calendar month during that part of the tax year that the organization holds the property. Add these amounts together, and divide the result by the total number of months during the tax year that the organization held the property.

The amount of gain or income taxable as UDFI for any tax year is the total income, multiplied by a fraction. The numerator is the average amount of acquisition debt, and the denominator is the average of the adjusted bases at the beginning and at the end of the year.

Before calculating the net income, certain deductions can be taken into consideration, just as they are when you purchase property outside of an IRA.  To be directly connected with debt-financed property or income derived from it, the deduction must be clearly related to the property and its income.

Securities purchased on margin are considered debt-financed property. 

Acquisition indebtedness is the outstanding amount of principal debt incurred by the organization to acquire or improve the property:

1. Before the property was acquired or improved, if the debt was incurred because of the acquisition or improvement of the property; or
   
   
2. After the property was acquired or improved, if the debt was incurred because of the acquisition or improvement, and the organization could reasonably foresee the need to incur the debt at the time the property was acquired or improved.