Let's Define Checkbook Self Directed IRA

9 Replies

It sounds like any other Self Directed IRA.

What's different?

Google led me to an Entrust website.  Any other good information sources you'd like to suggest?


Hi Alan,

Welcome to BP. This is a very common question and is widely discussed here on BP. I would suggest using the search feature to learn more about the details.

To give you an extremely quick run down without all the details, a check book IRA (aka IRA LLC, LLC IRA, checkbook IRA LLC) is simply an arrangement to take direct control of retirement funds through the use of an LLC.

Generally speaking, you will fund an SDIRA that allows private equity investments. You will have a third party create you a custom operating agreement and LLC. The SDIRA will purchase the shares of stock issued by the LLC, making the LLC stock your IRA's primary investment. Once this transaction is complete, you are appointed manager of the entity to control investments directly.

You can use an LLC if you like but an IRA can also purchase investments directly through the administration services of a Self Directed IRA Provider. I'm sure more people will come by shortly to share their other concerns. Best of luck!

@Alan Majors

Loren covered the basics.  

To sum up:

With an IRA held by a custodian, they hold the funds and will sign every document, pay all expenses and receive all income for the benefit of your IRA. They do the processing for the IRA, much like a brokerage would handle purchase/sales transactions of stocks, funds, etc. The custodian does not provide any tax or legal guidance, and will not perform diligence on any investments you are making

With a checkbook IRA LLC, an IRA like that above is established. This is the required administrative layer for contributions/distributions and annual reporting. Rather than facilitate all plan investments, the IRA is simply used to purchase the ownership interest of a specially crafted LLC. The IRA owns the LLC and you are the non-owner manager. This gives you signing authority for the LLC and the ability to execute investment transactions via the LLC without 3rd party paperwork, delays or fees. For more time sensitive or transaction-intensive assets, this is generally a much more effective approach.

If you work with a quality provider of such plans, you will also have access to guidance with respect to IRS regulations and your planned investments.

@Alan Majors

Loren gave you good overview I just like to add couple more things:

  • The main difference and advantage is that IRA LLC give you 'checkbook control'
  • You get additional liability protection that comes with the LLC
  • To get the checkbook control for an IRA you need special purpose LLC. The IRA will buy units of the LLC and will be the sole member. You will be designated manager
  • There is additional cost to set this up, but depending on the investments that you plan on making this structure can provide cost savings down the road because there is no cost per transaction or asset based fees (depending on the custodian that you use)

A checkbook IRA will give you direct control over the funds, bypassing a custodian. The larger custodians like Equity Trust and the like will not allow checkbook IRA's. IMO as a CPA, checkbook IRA's puts you at major risk of blowing up your ENTIRE IRA due to self-dealing.

@Victoire Van der Pas

I'm curious what your basis for such alarm is.

The risk of engaging in a prohibited transaction is really no different whether you work with a custodian or an advisory firm that implements and supports checkbook plans.

A custodian provides no significant oversight regarding the compliance of transactions. Sure, they will put on the brakes if you try to have a check issued to yourself, but that is about the extent of it. In fact, I have spoken with many investors who have been at risk of prohibited transactions due to the delays inherent in the use of a custodian managed IRA account. An example would be someone who appoints his daughter as property manager to handle all expense and income transactions for a rental property, then has periodic expenses from the IRA forwarded to his "property manager" so she can do things like pay for repairs or pay property taxes. I've also encountered folks who have personally paid for emergency repairs to a property because they could not obtain IRA funds from their custodian promptly.

By comparison, the administrative efficiency of the IRA owned LLC structure eliminates the need to "get creative" to solve a problem. Expense and income transactions are cleanly executed from the LLC account.

In addition, when one works with a quality advisory firm (as opposed to a pure document provider), they have access to much higher quality of guidance regarding the use of their IRA funds than a custodian is able to provide, and the kind of education that will help them avoid prohibited transactions.

Saying that a checkbook IRA is dangerous is much like saying any powerful tool is dangerous. Sure, if you don't read the instruction manual, you can lose a finger, but if you use the tool with the proper procedures, you can create excellent results.

@Brian Eastman

Self-directed IRAs and solo 401(k)s are great tools

Educating regular IRA holders that have money in traditional IRAs like Merril Lynch or Charles Schwab is not an easy feat in order to be able to get private money for your deals.

You need to educate yourself as a real estate investor how it works. 

There are great websites like PenscoTrust.com and trustetc.com

The private banker concept started in the 80s to get people to open up a self-directed IRA and lend you money, you the real estate investor

One of the best ways to educate a potential private lender is to give them a book written by Patrick Rice and it's called IRA wealth, try to get them used on Amazon and hand them out

it's what I do to financial planners and CPAs

If you can educate yourself on private lending and help people move money from a traditional IRA into a self-directed IRA you can get quick loans for your deals

A checkbook self-directed IRA or checkbook self-directed solo 401k is a legal structure and great tax shelter for those who work with experience professionals who understand the rules and regulations.

Something I dont have enough money to take advantage of. 

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