If you invest your self directed IRA into a trust, do you need an SDIRA Trust EIN? Legally, no. However, I strongly recommend one. Here’s why. For background on using a Trust with your SDIRA (rather than, say, an LLC), see this blog post.
Submitting a W-9
What is your Trust going to do with your IRA funds? For example, is your Trust going to open a bank account or investment account? If so, you will need to submit a W-9 or tax ID for that account. Tax a look at the W-9 image above or the full document on the IRS website.
You will see the form requires the tax ID in Part 1 to match the name on Box 1. With a grantor trust, you are allowed to use your SSN. However, you are NOT the grantor for your SDIRA Trust. Your IRA is the grantor. What is your IRA’s tax ID? Good question. Your IRA Custodian files all of their IRAs under their tax ID number. You are not allowed to use that EIN. That EIN is also not your IRA’s tax ID. The custodians do not need to create a tax ID for all of the IRAs individually. Self-directed IRAs produce an EIN issue by creating otherwise taxable transactions under an entity other than the IRA.
The instructions for a W-9 state that the tax ID to provide the requester for “(a) valid trust, estate, or pension trust” is the “Legal entity”. This means your Trust needs an EIN.
I believe that entering your own SSN creates confusion later when you try to explain to the IRS why income reported as taxable is, instead, tax deferred under your IRA.
What is your SDIRA Trust EIN?
Take a look at box 4. This box allows for codes that tell the IRS the entity in Box 1 is not subject to taxation. You will see here that these codes are not allowed for individuals. This means that if you supply your SSN for a Trust asset, and that asset creates income, the requester will issue a 1099 and tell the IRS your SSN is responsible for taxes on that income.
The income you create under your SDIRA Trust is tax deferred when created correctly. The key is how to convey this to the IRS. I recommend that you inform the IRS through the creation and proper use of an SDIRA Trust EIN. When asked to submit a W-9, you enter that EIN in Part 1, and you enter enter code “1” in Box 4.
Creating your SDIRA Trust EIN
When I create a Trust for your IRA, I create an EIN for your Trust as part of that service. That EIN, and your Trust document, will list you as the responsible party and your IRA as the grantor. Creating the EIN takes only a few minutes on the IRS website.
What of your CPA recommends against an EIN for your Trust? Point them to this post. If your CPA still recommends against an EIN for your Trust, go with your CPA. I don’t prepare and file your tax forms for you. If they have a solution for reporting taxable income as tax deferred while using your SSN for Trust assets and accounts, fantastic. I am not saying it isn’t possible. I just wouldn’t do it that way.
Looking to start a SDIRA, whether an IRA-LLC or an IRA-Trust? Contact me.