IRA's: Alternative Investments, Illiquid Assets and Limited Liability Companies 
I have been assisting clients take their IRA's and Retirement Plans offshore for well over 25 years. A significant number of articles written by me have been published by various newsletters and can still be found online.
Many of these articles were focused on what you can accomplish with a truly self-directed custodian. I've had numerous conversations regarding what investment, or action, triggers a prohibited transaction. Unfortunately, the public domain contains more bad information on this topic than accurate. No doubt, one of the primary causes of confusion is a lack of information provided by the IRS. Basically, the Internal Revenue Code, (IRC), tells you what's prohibited, not what is allowed. In essence, you cannot invest in certain collectibles, (wine, rugs, art, etc.), and you can't deal with yourself or other disqualified individuals. (No self-dealing.) You want to avoid engaging in or triggering a prohibited transaction at all possible cost. (Want more on the topic? Send me an email request.) Absent these restrictions, everything else is allowed! 
The other prevalent cause of confusion oftentimes comes from dealing with a custodian who imposes artificial restrictions on IRA participants. (Custodians have the right to limit customer investment selections, as they see fit, regardless of what is allowed.) Occasionally these restrictions are driven by a lack of knowledge, but more often than not the custodian is simply concerned about their own profit margin, limiting you to investments for which they receive compensation. For example, ask your local broker if you can hold real estate in an IRA. If lucky, your advisor will know it's compliant for an IRA to invest in real estate, but must inform you their firm doesn't allow it. If unlucky, your advisor will tell you it's not allowed, which is absolutely incorrect!
The question is, beyond traditional stocks, bonds, and mutual funds, what types of investments can you make? 
Alternative Investments-
Examples of Alternative Investments. 
1. Real estate
2. Loans/Privately held notes (You loan money to a friend for a car, business, home purchase etc.)
3. Privately held mortgages
4. Pre-IPO stock
5. Stock in a privately held company that is not publicly traded
6. Oil and Gas
7. Limited Partnerships
8. Hedge Funds
9. Business Franchise
10. Ownership of a privately run business
*Participants must adhere to all rules, avoid self-dealing and any actions that might trigger a prohibited transaction.
IRA participants, who invest in alternative or illiquid investments, should always keep in mind proper planning is required to be able to meet future distributions. In my practice I have found participants are often under the impression they must liquidate their investments and take a cash withdrawal. This is incorrect. Participants always have the option of taking an in-kind distribution. They are still responsible to pay the tax due upon distribution. The amount of tax due would be based upon the value of distributed investments. This necessitates a participant having liquid funds available from other sources to pay the taxes due.
Here is a simple example of an in-kind distribution.
Participant owns 1,000 shares of a privately held stock. The company has notified the participant current valuation of their stock is $10 per share. The participant’s CPA® has notified him or her their required mandatory distribution, (RMD), for the year is $1,000. $1,000/$10=100 shares. The participant instructs the IRA Custodian to re-register 100 shares of stock out of their IRA and into their personal name. The Custodian reports a $1,000 distribution to the IRS and participant is responsible for the tax.
In-kind distributions can be incredibly useful. Many of my clients have purchased real estate all over the world with no intention of ever selling it. For some, it will eventually become the beachfront vacation home they have always dreamed of owning. An in-kind distribution affords them the possibility of keeping their real estate investment intact. It provides them flexibility to reduce the effective tax rate a one-time total distribution would normally trigger. It does so by spreading out the ownership/distribution over a number of years.
LLC's- Investment Flexibility and Asset Protection
An LLC can be a valuable tool for clients who are looking to invest their IRA into illiquid investments. The courts have already ruled on the legality of an IRA investing in an LLC. (Copy available upon request.) LLC's have become a very popular way to structure alternative investments. A participants decision on whether to use either a domestic or foreign LLC, will ultimately depend upon where the underlying investments are located.
Much has been written about asset protection and the use of a foreign LLC. If you would like to learn more about the protection afforded by a foreign LLC, please let me know and I will be happy to provide a number of resources. For the sake of brevity, I will exclude such a discussion in this article.
LLC's have numerous advantages. A single member LLC owned by your IRA will be treated as a disregarded entity for tax purposes, (unless you specifically choose otherwise).  Most taxable events flow through to the underlying owner, which in this case is your IRA or Retirement Plan and are sheltered.
An LLC has membership units instead of shares of stock. Effectively membership units work the same, which would allow participants to take advantage of an in-kind distribution as previously explained.
LLC Example-
Participant directs the custodian to establish a Nevis LLC company to be owned by their IRA. The participant directs the LLC to establish an account with a foreign bank and in turn hires a non-US investment manager.  At some point the client reaches the age where they must begin taking RMD's. They like their current structure and underlying investments having no wish to liquidate them. Ultimately they do not want to repatriate their funds and wish to leave them in the foreign bank account. The participant would simply instruct their custodian to re-register partial ownership of the LLC. This would take it out of the name/ownership of the IRA and place it into their name. 
The sky is the limit when it comes to investing with your IRA and or Retirement Plan. With proper planning you can gain significant investment flexibility for your IRA, while protecting it from forced liquidation.
Please feel free to contact my office if you have additional questions and or would like a copy of any resources I have made reference to.

Contact Sovereign

7143 State Rd 54, #147,
New Port Richey, FL 34653

Phone: 727-286-6237
Toll Free: 877-733-6815
Fax: 727-286-6239
Monday-Thursday 8:00am-4:30pm
Friday 8:00am-4:00pm

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