The IRA Checkbook Control Solution is a Tax Court and IRS approved investment solution for using IRA funds to make IRS approved investments. The IRA Checkbook Control has been a recognized retirement solution for the last 15 years. The idea of using a special purpose entity owned by an IRA to make an investment was first reviewed by the Tax Court in Swanson V. Commissioner 106 T.C. 76 (1996) (“Swanson”). In Swanson, the Tax Court, in holding against the IRS, ruled that the funding of a new entity by an IRA for making IRA related investments was a permitted transaction and not prohibited pursuant to Internal Revenue Code Section 4975. The Swanson Case was later confirmed by the IRS in Field Service Advice Memorandum (FSA) 200128011.
Since 2001, the IRA Checkbook Control structure has become the investment vehicle of choice for investors looking to use retirement funds to make real estate, precious metals, and other investments tax-free and without custodian consent. Also known as the Self Directed IRA LLC or Self Directed IRA with Checkbook Control, this structure offers an IRA holder “checkbook control” over his or her retirement funds. Using an IRA Checkbook Control structure, the IRA holder will gain access and checkbook control over his or her retirement funds. As a result, each time an IRA investment is made, the IRA holder will have the ability to simply write a check or wire the money straight from the IRA LLC account to make the investment. No longer will the IRA holder be required to seek the consent and approval of an IRA custodian before making an Investment.
Establishing an IRA Checkbook Control Solution?
When establishing an IRA Checkbook Control solution it is vital that you work with tax professionals who have expertise in the tax and ERISA area. The reason for this is that the structure is based off the Internal Revenue Code and the IRS Treasury Regulations and it is important to work with a tax professional who can properly navigate and understand the tax rules.
With an IRA Checkbook Control solution, a special purpose limited liability company (LLC) is formed. The LLC should be formed by a tax professional because there are a number of items that must be properly included on the Articles of Organization. The LLC is typically formed in the state where the IRA investment will be made. This is especially true if real estate will be the investment of choice. The IRA care of the IRA custodian would be the member (owner) of the LLC and the IRA holder would serve as the manager of the LLC.
With an IRA with Checkbook Control, one will no longer have to pay excessive custodian fees based on account value and transaction fees. Instead, with an IRA checkbook control solution, the retirement funds (i.e. IRA, Roth IRA, 401(k), 403(b), SEP, SIMPLE, etc) would be transferred tax-free to a new IRA custodian who would then the funds tax-free to a new IRA LLC bank account. The custodian in the IRA Checkbook Control structure is referred to as a “passive” custodian largely because the custodian is not required to approve any IRA related investment and simply serves the passive role of satisfying IRS regulations. By using an IRA Checkbook Control solution, you can take advantage of all the benefits of self-directing your retirement assets without incurring excessive custodian fees and custodian created delays.
With an IRA with checkbook control, as manager of the LLC, you will have the authority to make investment on behalf of your Self Directed IRA LLC. The Investment must be made in the name of your Checkbook Control IRA LLC. All income and gains generated by your IRA with Checkbook will generally flow back to the Self Directed IRA tax-free!