Posted over 9 years ago

Checkbook IRA (aka IRA owned LLC)

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What is a Checkbook IRA?

Checkbook IRA is a self-directed IRA on steroids. Let me explain... Many investors are looking for ways to diversify from the stock market into alternative investment sector (real estate, trust deeds, etc). To do so you need a self-directed IRA with a custodian who will allow alternative investments. 

But custodian are in business to make money and charge asset based fees, investment fees, transactions fees, check fees, etc. The cost to maintain self-directed IRA varies and generally increases as your account grows, you acquire more investments and are doing more transactions. In addition to that when you need the funds to pay for investment related expense in your IRA you have to request your custodian to issue the check since they are holding your IRA money and you don't have direct access to it. This creates delays and inconvenience. For those reasons some investors are looking for ways to streamline the process. Since custodian is required by the IRS they can't be completely eliminated, but you can bypass the custodian by creating special purpose, single-member LLC which is owned by your IRA and managed by you. IRA invests into this LLC by purchasing 100% of the LLC units, funds are transferred from your custodial account into LLC checking account which you as the manager of the LLC can open at any bank of your choice and now all investments are done inside of the LLC without custodian's involvement. This eliminates all transaction fees and delays allowing you to make investments as simple as writing a check!

The Checkbook IRA is the ideal platform for purchasing real estate. It gives you two powerful tools which enable your retirement account to achieve success.

The power of the LLC

By using the platform of a Limited Liability Company, you have total control over your retirement funds. This means that all of the investment decisions are in your hands. You won’t have to go through the bureaucracy and delays of a holding institution, and you’ll be able to pursue investments as you see fit.

The power of checkbook control

In the real estate field, opportunities arise quickly, and in order to capitalize on those opportunities, you have to move quickly as well. The Checkbook Control feature allows you to finalize deals with the simple signing of a check. You’ll never miss the perfect opportunity again!

But with the freedom comes responsibility. You must understand IRS Prohibited Transaction rules and that your IRA  can not engage in any transaction with a Disqualified Person

Related: Warning: Investing in Real Estate with a Self-Directed IRA

Access the full spectrum of real estate

With your Checkbook IRA you can invest in almost every available real estate product. Produce a steady return by investing in rental properties or strike it big by attaining a foreclosure at auction. How about commercial property or multi-family apartment building. Or if you wish to invest outside of the US - you can do that too. Checkbook IRA gives you the investment freedom you need to pursue the most profitable real estate deals.

How does Checkbook IRA works?

The first step is establishing account with IRS-approved custodian. Next your funds are transferred from your existing retirement account (Traditional IRA, Roth IRA, SEP IRA, Simple IRA, 401k, 403b, etc) into your new custodial account.

Your custodial IRA now needs an investment platform. To accomplish a special purpose, single-member Limited Liability Company must be established following IRS rules and customized for IRA.

Next the LLC is capitalized. This is done by having the custodian invest your IRA funds into the newly formed LLC. The custodian will wire the funds (or mail the check) into your IRA owned LLC checking account at the bank of your choice.

Now you are ready to start making investments, which is as easy as writing a check!

Comments (3)

  1. This is excellent info!

  2. @Joe Yobaccio 

    I need to better understand your situation before I can give you any feedback. Let's schedule time to chat sometime next week. Please click on the link below to access my calendar and pick the time that would work best for you:

    Talk soon!

  3. I am not far from your office and met one of your office colleagues a few months ago. I'd like to know what your opinion is on the types of investments a novice self directed IRA investor can make here in SoCal?  Is a buy and hold single family residence in Riverside, as an example, a way to start?  What about commercial investments, what are your thoughts on those?