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Retirement

Self-Directed IRA LLC: The Checkbook IRA Explained

A self-directed IRA gives you more investment options and lets you invest in alternative assets like real estate, crypto, and private equity. The downside is that every investment has to go through a custodian. You don't have checkbook control.

If you find something you want to invest in, you have to instruct your custodian to send the funds and make the investment for you. If you're making time-sensitive investments, this process isn't ideal since you have to wait for your custodian to respond and act on your instructions each time. They may also charge transaction fees each time they make an investment for you.

A self-directed IRA LLC, also known as the checkbook control IRA, is a special type of self-directed IRA that uses an LLC to give you full checkbook control. Instead of investing through a custodian, you get the power to make investments directly.

What is a checkbook IRA?

A checkbook IRA is the same thing as a self-directed IRA, except that it adds one additional entity to the picture: An LLC.

  • The LLC is entirely owned by your IRA.
  • You’re appointed as the manager of the LLC. 
  • The LLC has its own checking account. 
  • As the manager of the LLC, you get control over the checkbook.

Instead of the custodian holding all of your IRA’s funds and assets, it all gets sent to the LLC’s checking account, where you control the checkbook.

Now, instead of making investments through your custodian, you can make investments directly through the funds in the LLC's bank account.

You still need a custodian for your IRA, but with a checkbook IRA, they’re passive in nature and are only there in the background since the IRS requires that all IRAs have a custodian. If you need to make contributions to your IRA, take distributions, or rollover funds, you would need to do it through your IRA custodian.

Benefits of a self-directed IRA LLC

The main benefits of a self-directed IRA LLC are:

Checkbook control: You get full control over your investments. You don't need to wait on your custodian to send the money every time you want to invest in something.

No transaction fees: Not all custodians charge transaction fees, and it depends on the investments you're making. But overall, if you make a lot of investments, it's cheaper to invest through a checkbook IRA since you don't have to rely on your custodian for every transaction.

Protection: An LLC gives you limited liability protection, which can be especially helpful if you're investing in real estate.

Privacy: You can name your LLC whatever you want, giving you more anonymity when you invest in something.

How to open a checkbook IRA

Step 1: Open a self-directed IRA with a custodian of your choosing. Since you’re going to be making all your investment decisions on your own, you don’t need to find a specific custodian that offers the investment choices you want. You can set up a self-directed IRA with any reputable custodian.

Step 2: Fund your self-directed IRA. You can choose to make contributions or rollover funds from another retirement account.

Step 3: Form a single-member LLC with your IRA as the sole member.

Step 4: Appoint yourself as the manager of the LLC.

Step 5: Open a checking account under the LLC’s name.

Step 6: Fund the new LLC with the funds from your IRA.

Step 7: Invest in what you want. You control the checkbook.

What can I invest in through an IRA LLC?

You can invest in any asset class through an IRA LLC. You can invest in traditional assets like stocks, mutual funds, and ETFs or alternative assets like real estate, crypto and private equity.

The only things you cannot invest in are collectibles, life insurance policies, and any prohibited transactions with disqualified persons.

The most common investment through a checkbook IRA is real estate. Because you have an LLC, you have limited liability protection and more privacy in your investment.

A real estate investment also requires more frequent use of your IRA's funds. It's a pain to have to contact your custodian each time you need to pay a bill or purchase supplies for your property. With an IRA LLC, you have direct access to the funds through the LLC's bank account.

Does a checkbook IRA LLC make sense for me?

A checkbook IRA makes the most sense when you're investing in real estate. Having an LLC adds an additional layer of protection and privacy.

It also makes sense if you make frequent investments that are time-sensitive. For example, if you buy and sell crypto or stocks frequently, it helps that you don't have to contact your custodian every time you want to make an investment.

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