The Key Document in Your Self Directed IRA by Tom Walker

When setting up a Self Directed IRA care must be taken in the documentation. The most important of these documents is the Operating Agreement used in governing your limited liability company.

Limited Liability Companies are required to have an Operating Agreement - the rules by which the limited liability company is governed. Most LLC's that are formed by incorporating companies will provide a kit that includes a generic Operating Agreement. This generic agreement will not meet the requirements of your self directed IRA. You will need to customize this agreement to fit the needs of your LLC.

A copy of the Operating Agreement will be required by the Custodian and also by the bank where you will have your LLC's checking account.

An operating agreement helps your LLC by guarding your limited liability status, heading off financial and management misunderstandings, and making sure your business is governed by your own rules -- not default rules created by your state.

The main reason to have an operating agreement is as simple as it is important: It helps ensure that courts will respect your limited personal liability. This is particularly important in a one-person LLC where, without the formality of an agreement, the LLC will look a lot like a sole proprietorship. Having a formal written operating agreement will lend credibility to your LLC's separate existence. An operating agreement is also used to override default rules imposed by your state's LLC Act. For example, many LLC Acts provide that each member will have equal voting power on company decisions. However, if one member contributes 75% of the capital to the company, the members may agree that member should have more voting power. This can be addressed in the operating agreement to override the default state rules.

There's a host of issues you must cover in your LLC operating agreement, some of which will depend on your business's particular situation and needs. Most operating agreements include the following:
Members' percentage interests in the LLC
Each members rights and responsibilities
Each members voting powers
How profits and losses will be allocated
How the LLC will be managed
Rules for holding meetings and taking votes, and
Buyout, or buy-sell, provisions, which establish a framework for what happens when a member wants to sell his or her interest, dies, or becomes disabled.

These issues must be addressed in your operating agreement and can be adjusted according to your particular requirements and those of the Internal Revenue Service.

A Self Directed IRA can be a significant wealth builder for you and your family. Take the time to investigate the possibility of using it in your financial plan - you will be glad you did!

You do not need to spend thousands of dollars to establish a self directed ira. You can do most of the groundwork yourself. The formation can be accomplished for less than a thousand dollars just by doing a little legwork to find a suitable custodian, forming a limited liability company in the state of your choice. You can do this or use any of the many online companies that specialize in the formation of corporations and limited liability companies.

You must follow the steps necessary to make sure your self directed ira complies with all the rules and requirements of the Internal Revenue Service

Author Resource: SelfDirectedIRA.org provides important information on forming a Self Directed IRA. Visit our website at Self Directed IRA

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