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What is a Self-Directed IRA LLC with Checkbook Control?

Self-Directed IRA LLC
6 Minute Read

The Self-Directed IRA

The Self-Directed IRA is a retirement account vehicle that is best known for allowing investors to use retirement funds to buy alternative assets, such as real estate. “Self-Directed IRA” is not a term of art and you will not find it anywhere in the Internal Revenue Code (“Code”).  It simply refers to an IRA account which is permitted to be invested in traditional assets, such as stocks, but also alternative assets, such as real estate. One major advantage of investing in alternative assets with a Self-Directed IRA is that all income and gains are tax-deferred until the time when the IRA holder (you) takes a distribution.

The Self-Directed IRA LLC

The Self-Directed IRA LLC with “checkbook control” has quickly become the most popular vehicle for investors looking to make alternative assets investments, such as rental real estate that require a high frequency of transactions. Under the Checkbook IRA format, a limited liability company (“LLC”) is created which is funded and owned by the IRA and managed by the IRA holder. The “checkbook control” self-directed IRA allows one to eliminate certain costs and delays often associated with using a full -service IRA custodian.  The Checkbook IRA LLC structure allows the investor to act quickly when the right investment opportunity presents itself cost effectively and without delay.

How it Works

A “checkbook control” IRA is essentially a Self-Directed IRA that involves the use of a special purpose limited liability company (“LLC”).  The LLC is owned by the IRA but managed by the IRA holder.  The use of the LLC allows the IRA holder the ability to make IRS-approved investments more quickly and with less fees. Here’s how it works:

  1. Download our app and establish a Self-Directed IRA.
  2. Transfer or rollover your retirement assets that you will be using to invest tax free with IRA Financial. We will handle all IRA transfers automatically, but rollovers from 401(k) plans will need to be initiated by you (we are always available to assist).
  3. IRA Financial will establish a special purpose LLC that will be wholly owned by the IRA, along with an LLC bank account at Capital One for you. Alternatively, you are free to use a bank of your choice.
  4. You will be notified once your funds have been transferred to IRA Financial. We will then send the funds to your LLC.
  5. As manager of the IRA LLC, you will have checkbook control over all the assets and funds within it and can make any investment by check or wire on your own. Since the LLC will be owned by one IRA, it will be treated as a disregarded entity for federal income tax purposes and no federal income tax return will be required. All income and gain from your investments will flow back to the IRA without tax.

Self-Directed IRA LLC Flowchart

SDIRA LLC Chart

Advantages of the Self-Directed IRA LLC

A Checkbook IRA is the true definition of Self-Directed IRA. You gain checkbook control, which comes with many advantages to you, the IRA holder. The major benefits of checkbook control are: 

Complete Control of Your IRA

With the Checkbook IRA, you benefit by investing in assets you understand. Don’t understand Wall Street? Don’t invest in Wall Street. With complete control of your IRA, you can invest in real estate, tax liens, precious metals and many other popular investment assets. Additionally, you no longer need to wait for a custodian’s approval. 

Easy & Immediate Investments

When you see an investment you want, simply write a check or wire the funds from your self-directed IRA LLC bank account. Your Self-Directed IRA LLC is seen as a business entity, therefore it can establish its own bank account, which gives you the ability to directly access the funds you need. Within minutes, the investment is yours. 

More Affordable

Because you’re the manager of the Checkbook IRA LLC, you don’t need to pay a custodial fee for each IRA investment, or the transaction fees applies whenever you make a transaction through a custodian. So this last benefit of the Checkbook IRA is that you simply make a one-time establishment fee. 

Diversification

Whether it is through retirement investments, such as IRAs or 401(k) plans, or personal savings, many of us have most of our savings connected in some way to the stock market. In fact, over 90% of retirement assets are invested in the financial markets. Investing in non-traditional assets, such as real estate offers a form of investment diversification from the equity markets. In general, the more diversified your portfolio, the greater chance that your assets will offer lower correlation, meaning they are less likely to move in the same direction.

Invest in Something You Understand

Many Americans became frustrated with the volatility of the equity markets. Many Americans are somewhat shell-shocked from the market swings and not 100% sure what exactly goes on in Wall Street and how it all works. Real estate, for comparison, is easier to understand. Real estate is quickly becoming a mainstream asset category and one of the most trusted asset classes for Americans. The same goes for cryptocurrencies, which is based on the blockchain – a new and exciting  technology – which many investors wish to gain exposure to in a tax-friendly account.  It is, of course, not without risk, however, many retirement investors feel more comfortable understanding the real estate market and buying and selling real estate than they do stocks.

Hard Asset

Many alternative assets, such as real estate and precious metals, are tangible, hard assets that you can see and touch. With real estate, for example, you can drive by with your family, point out the window, and say, “My IRA owns that.” For some, that’s important psychologically, especially in times of financial instability, inflation, or political or global upheaval.

Is the Self-Directed IRA LLC Right for Me?

For one-off investments or investments with long holding periods, such as hedge funds & other investment funds, then a custodian controlled Self-Directed IRA may make sense since there is no LLC establishment fee.

For high frequency of transactions or transactions involving a high volume of activity, such as rental real estate, house flipping, or hard money loans, the checkbook control Self-Directed IRA LLC may be your best solution.

  • Gain limited liability protection
  • Control over investments as manager of the LLC
  • No transaction fees
  • Privacy – investment is being titled in the name of the LLC and not the IRA

In addition, if you are interested in investing in cryptocurrencies, other than Bitcoin, Ethereum, Litecoin, and other more popular coins available on Gemini, the use of a Self-Directed IRA LLC will be needed in order to link the IRA LLC account to a different crypto exchange, such as Coinbase, Kraken and Binance,. 

In general, if you are looking for limited liability protection, ultimate control, and/or privacy, the Self-Directed IRA LLC would be a smart choice!

What Investment can I Make with a Self-Directed IRA LLC?

A Self Directed IRA LLC offers one the ability to use his or her retirement funds to make almost any type of investment on their own without requiring the consent of any custodian or person. In fact. the IRS only describes the type of investments that are prohibited, which are very few.

The IRS and the Internal Revenue Code do not describe what a self-directed IRA can invest in, only what it cannot invest in. Internal Revenue Code Sections 408 & 4975 prohibits Disqualified Persons from engaging in certain type of transactions, such as life insurance, collectibles, or any transaction directly or indirectly involving or benefiting a “disqualified person.”  A “disqualified person” is essentially defined as the IRA holder and any of his or her lineal ascendants and descendants, as well as any entities controlled by such persons.

The following are some of the more common of types of investments that can be made with your Self-Directed IRA LLC:

  • Residential or commercial real estate
  • Raw land
  • Foreclosure property
  • Mortgages
  • Mortgage pools
  • Deeds
  • Private loans
  • Tax liens
  • Cryptocurrencies
  • Private businesses
  • Limited Liability Companies and Partnerships
  • Private placements
  • Precious metals
  • Stocks, bonds, mutual funds
  • Forex
  • Options

Get started for a simple, flat fee.

The IRA Financial Difference

Experience

Our tax and ERISA experts have helped over 16,000 clients invest $4.6 billion in alternative assets.

Prestige

Our founder, Adam Bergman, was a tax lawyer and is the author of 8 books on self-directed retirement plans.

Dedicated Support

In addition to tons of online resources, IRA Financial gives clients access to experienced specialists dedicated to your peace of mind.

Get in Touch

If you still have questions about the Self-Directed IRA fees or checkbook control, contact IRA Financial Group directly at 800-472-0646. Or fill out the form to speak with an on-site IRA specialist today.

Did you know?

A Checkbook Control Self-Directed IRA LLC allows you to invest in many kinds of alternative investments, as well as the more traditional ones. Tax liens, foreclosures, mortgages and more real estate and other opportunities are available to you. Contact us today to learn more.

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