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Using Venmo with Your Self-Directed IRA LLC

Venmo Self-Directed IRA

The Self-Directed IRA has changed dramatically over the last twenty or so years thanks to certain case law and technology.  One of the major advantages of using a Self-Directed IRA is that you gain investment diversification and can use retirement funds to invest in alternative assets and generate tax-deferred income or gains. One of the newer technologies taking the forefront is Venmo.

From 1973 to the late 1990s, if one wanted to establish a Self-Directed IRA to make alternative asset investments, one was required to go through the IRA custodian for all facets of the IRA investment.  This has become known as the “custodian controlled” Self-Directed IRA.

Key Points
  • There are two types of Self-Directed IRAs: Custodian Controlled and Checkbook Control
  • A Checkbook IRA gives you total freedom to invest
  • Connecting Venmo or other banking apps to your IRA allows for easier transacting

Custodian Controlled Self-Directed IRA

A “custodian controlled” Self-Directed IRA offers an IRA investor more investment options than a financial institution Self-Directed IRA. With a custodian controlled Self-Directed IRA, a special IRA custodian will serve as the custodian of the IRA. Unlike a typical financial institution, most IRA custodians generate fees simply by opening and maintaining IRA accounts and do not offer any financial investment products or platforms. With a custodian controlled Self-Directed IRA, the IRA funds are generally held with the IRA custodian and at the IRA holder’s sole direction, the IRA custodian will then invest the IRA funds into traditional as well as alternative asset investments, such as real estate.

A “custodian controlled” self-directed IRA is popular with retirement investors looking to invest in alternative assets which do not involve a high frequency of transactions, such as the purchase of raw land or private fund investments.

Checkbook Control Self-Directed IRA

In 1996, the concept of using an entity owned by an IRA to make an investment was first reviewed by the courts in Swanson V. Commissioner 106 T.C. 76 (1996). In Swanson, the Tax Court, in ruling against the IRS, held that the funding of a new entity by an IRA for self-directing assets was not a prohibited transaction pursuant to Internal Revenue Code Section 4975.  The Swanson case was the case that started the trend of using a special purpose entity, such as an LLC, to make IRA investments.  This became known as the “checkbook control” Self-Directed IRA.

With a Self-Directed IRA with checkbook control, a special purpose limited liability company (“LLC”) is established that would be owned by the IRA and managed by the IRA holder (you). As manager of your Self-Directed IRA LLC, you have the authority to make investment decisions on behalf of your IRA on your own without needing the consent of an IRA custodian. With a Self-Directed IRA LLC with “Checkbook Control,” also known as a Checkbook IRA, you will be able to make investments by simply writing a check.  Since all your IRA funds will be held at a local bank, such as Capital One, in the name of the IRA LLC, all you would need to do to make an investment or pay a bill is write a check straight from the IRA LLC bank account or simply wire the funds from the IRA LLC bank account.

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    A “checkbook control” Self-Directed IRA LLC is popular with retirement investors seeking to invest in alternative assets, such as rental properties, fix and flips, tax liens, or cryptocurrencies that require a high frequency of transactions.

    Venmo and the Self-Directed IRA

    Over the last several years, technology has changed the way we use a bank and transfer funds for investment and business purposes. Companies such as Paypal and Venmo have emerged and introduced new digital ways one can make purchases and transfer funds 100% electronically.

    IRA Financial’s partnership with Capital One Bank allows our clients to establish a Self-Directed IRA seamlessly without ever having to visit a bank.  Furthermore, we are even able to open your IRA LLC account at Capital One effortlessly and with no minimum balance requirement, allowing you to make Self-Directed IRA investments on your own with no custodian involvement.  Additionally, you will be able to link your Capital One’s bank account to Venmo in order to gain the ability to make payments or purchases quickly and 100% electronically.

    Venmo allows you to pay and request money from individual service providers. At its core, Venmo provides an easy way to pay for business or real estate services when you owe money and don’t want to deal with cash or checks.  In the case where you need to make a business purchase, Paypal is a great way to do this. You can use Paypal at millions of online retailers to make purchases, such as Home Depot, Wayfair, Target, and Ace Hardware, which is great for real estate investors.

    The 21st Century Way of Investing

    Technology has made using a Self-Directed IRA LLC to make alternative asset investments much quicker and easier.  No longer do you need to go through the IRA custodian to make investments or use a paper checkbook.  You can now use an online back account, Venmo, Paypal, or other online banking apps to transfer funds or make online purchases as part of your Self-Directed IRA investment experience.

    To learn more how you can set-up a Self-Directed IRA LLC, please contact one of our self-directed experts at 800-472-0646.

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