A number of IRA custodians advertise themselves as offering a Self Directed IRA, but what they are disclosing is that you will need to seek their approval before making an investment with your IRA.
1. Self-Directed IRA Without “Checkbook Control”
With a custodian controlled Self-Directed IRA without “Checkbook Control”, most types of nontraditional investments, such as real estate are permitted, however, the consent of the custodian is required in order to approve the investment. This typically results in long delays and high custodian fees associated with the transaction. For example, it is common for a moderately active investor with $125,000 in assets with a Self Directed IRA custodian without checkbook control to end up paying from $800 to $1300 in aggregate annual fees (i.e. account value fee, transaction fees, approval letters).
Moreover, there is no guarantee that the custodian will approve the Self Directed IRA or Self Directed Roth IRA investment even though the investment would not violate Self Directed IRA rules.
2. Self-Directed IRA LLC with “Checkbook Control”
The Self Directed IRA LLC “Checkbook Control” Structure has become the popular choice for making Self Directed IRA investments over the last ten years. With a “truly” Self Directed IRA LLC with “checkbook control”, you will have total control over your IRA funds and you will no longer have to get each investment accepted by the custodian. As a result all Self Directed IRA real estate decisions are truly yours. Just like a Solo 401k Plan, a Self Directed IRA allows you to eliminate the delays associated with an IRA custodian, enabling you to act quickly when the right investment opportunity presents itself. In addition, the Self Directed IRA Passive Custodians typically charge a low flat annual fee irrespective or account value or the number of annual IRA transactions allowing for significant financial savings.
With a Self-Directed IRA LLC, a limited liability company (“LLC”) is formed that is owned by the IRA account and managed by the IRA account holder. The IRA holder’s IRA funds are then transferred by the IRA Passive Custodian to the LLC’s bank account providing the IRA holder with “checkbook control” over his or her IRA funds.