IRA LLC vs IRA Trust: Which One Do You Need?
They do the same job. Both give your IRA checkbook control, both let you sign contracts and write checks without waiting on a custodian, and both cost essentially the same to set up.
The difference is what happens every year afterward. An LLC is a state registered entity, so it owes whatever annual fee your state charges to keep it alive. A trust is not an LLC, so it does not.
If your state charges a meaningful annual fee, the trust is the cheaper way to hold exactly the same thing. If your state charges little or nothing, the two are close enough that either works. That is most of the decision.
Start with what is identical, because it is nearly everything
People expect this comparison to be complicated. It is not, and it helps to clear the shared ground first.
Checkbook control works the same way. Your IRA owns the entity, LLC or trust. The entity has its own bank account. You operate that account. You sign the purchase contract, wire the earnest money, and pay the roofer without submitting anything to a custodian for approval.
Your role is the same, under a different name. In an LLC you are the manager. In a trust you are the trustee. Both are you, the IRA account holder. Both sign contracts, write checks, and direct transactions. The title on the signature line changes but the job does not.
Titling works the same way. The entity, LLC or trust, is the buyer. On an LLC purchase contract, the buyer is the LLC by name. On a trust purchase contract, the buyer is the trust by name. Same for escrow instructions, service agreements, and the property manager agreement.
The setup cost is the same. There is no premium for choosing one over the other. The fee is flat and one time in both cases, it is not a percentage of your account, and there is no annual fee to MyDirect IRA under either structure.
The rules are identical. Disqualified persons, prohibited transactions, no personal use, no paying yourself, every expense out of the entity account. Neither structure creates a loophole, and anyone selling one as though it does is worth walking away from.
A licensed self directed custodian still holds the IRA. That does not change. The entity is an asset of your self directed IRA, not a replacement for it.
The one real difference, and what it costs
An LLC is registered with a state. That registration carries an annual price, and the price is set by the state rather than by you or by us.
California charges $800 a year. That is the franchise tax minimum, owed annually for the privilege of having the LLC exist. It applies whether the LLC earned anything or not. For a Californian, that is $800 every year purely for the container the property sits in.
Several other states charge $300 to $400 a year in franchise taxes or annual report fees. Some charge very little. A few charge essentially nothing.
Only LLCs owe those fees. A trust is not an LLC and is not liable for the same annual fees. So in a high fee state, the trust delivers the identical checkbook control without the recurring bill.
Run the arithmetic over the life of a hold. A rental held for fifteen years in California costs $12,000 in franchise tax alone under an LLC. The trust holding the same property, doing the same things, with the same person signing the same checks, costs nothing extra. That is the whole argument, and it is a strong one in the states where it applies.
The honest downside: banks know LLCs better
This is the part most comparisons skip, so here it is plainly.
Trusts see less traffic at banks than LLCs do. A branch employee hears "I need an account for my LLC" constantly and "I need an account for a trust" much less often. Unfamiliarity produces friction: more questions, more escalation, occasionally a flat no from someone who has not done one before.
That is a real practical difference and it is worth knowing before you choose.
It is also solvable. Working with an institution that has opened these before, the account opens as easily as an LLC account does. There is no additional legal hurdle and nothing unusual in the paperwork. The obstacle is familiarity, not complexity, which means the fix is choosing where you walk in rather than changing the structure.
Where custodian-directed fits
Worth naming the third option, because it is legitimate and this article is not an argument that everyone needs checkbook control.
In a custodian-directed self directed IRA there is no LLC and no trust. The IRA holds the property directly, the custodian signs and funds each transaction, and you submit paperwork for every step. It is slower and there are usually per transaction fees, but there is less for you to get wrong, because you are not the one signing.
If you are buying a single passive asset, a plot of land held for appreciation being the clearest example, with no rent to collect and no further transactions expected after the purchase, that can be the right answer and it costs less to establish.
The comparison in this article assumes you have already decided you want checkbook control. If you have not decided that yet, decide it first, because it is the larger question.
So which one
The state fee decides it in most cases.
Choose the trust when your state charges a meaningful annual fee to keep an LLC alive. California at $800 is the clearest case. The $300 to $400 states are close behind. You get identical control and identical rules, and you stop paying a yearly bill for the privilege.
Choose the LLC when your state's annual cost is low or nothing, or when you would rather hold the more familiar entity. Banking is marginally easier and more professionals have seen one before. In a low fee state there is no strong financial reason to prefer the trust.
Either works far more often than people expect. This is not a decision where one choice is sophisticated and the other is naive. Two people in different states, doing exactly the same deal, can correctly reach different answers.
We do not steer clients one way or the other, and there is no reason to. The setup fee is the same either way, so the recommendation follows your state rather than our economics.
What does not change either way
Whichever you choose, these stay true, and they are where people actually get hurt.
You cannot live in the property or use it, not even briefly. You cannot rent it to your parents, your children, or your spouse. You cannot do the renovation work yourself. You cannot pay a property bill from your personal account and reimburse yourself later, and that last one catches more people than all the others combined.
Every dollar in and out moves through the entity's bank account. Rent in, taxes and insurance and repairs out. Keep a cash cushion in that account so an unexpected repair never tempts you toward a personal check.
The custodian charges for the self directed IRA itself regardless of structure, typically around $50 to open and about $300 a year. Ask whether that fee is flat or tied to the value or number of assets, because that answer matters more over a long hold than the number you are quoted today.
Working out which one fits you
Two questions settle it: which state will the entity be formed in, and how many accounts are funding the purchase. Those answers determine the structure and the cost, and they take about a minute to work through.
We have set up 400+ of these over 13+ years, in all 50 states, in both structures. Part of the job is telling people when neither one fits their plan, and if the rules would kill your deal you will hear that instead of a pitch.
If you want the longer explanation of the structure itself, start with how an IRA Trust works.
Ted Erickson is the founder of MyDirect IRA. He has spent 13+ years in the self-directed retirement account industry and has established 400+ checkbook IRA structures for clients in all 50 states. He is a licensed California real estate salesperson and mortgage loan originator.
This information is for educational purposes only and should not be considered tax, legal, or investment advice. Consult your own tax or legal advisor before making any investment or plan-structure decisions.
