The rules governing a self-directed IRA are not necessarily the same as the rules governing traditionally held IRAs at traditional IRA custodians. The rules can also vary between self-directed IRAs depending on what instruments are used to set them up. The most common instrument is the Limited Liability Company (LLC) and there are many reasons why investors choose it. Whatever you choose, remember that your money grows faster with your attention.
The rules governing IRAs are the product of federal legislation and the desires of major financial institutions. The federal laws and your plan document are the only constraints on your IRA. In practice your plan document has the most impact on how you can invest your IRA's funds. The main reason IRAs have the reputation of being safe, but restrictive is because the first generations of plan documents were written that way.
The reason investors so often form Limited Liability Companies within their IRAs is because of the degree of control they can gain over their investments. Rather than asking their IRA administrators every time they want to make an investment, and paying the attached fees, they can maintain checkbook control over their IRA investments. The avoidance of fees and the freedom of investment are the self-directed IRA, LLC's big selling points.
The Rules for Creating a Self-Directed IRA
You must first find someone who will take custody of your IRA and let you be in charge of it. (Banks and other large financial institutions usually will not.) Companies that specialize in setting up self-directed IRA LLCs have favorable determination letters, are in compliance with IRS Circular 230, and provide a warranty for their products, and simplifying the entire process. It is recommended you stay away from facilitators and self directed IRA kits that incomplete, sales oriented only and do not have the aforementioned qualities when setting up your IRA - LLC. A qualified IRA advisor should be able to answer any initial questions you may have, refer you to a reputable self directed IRA custodian, and establish an IRS 4975 compliant self directed IRA Limited Liability Company.