Checkbook IRA: Real Estate Investing Using an LLC

Forming a limited liability company (LLC) with your self-directed IRA is just another example of how these retirement accounts give owners greater control over their own investment funds and decisions. Also known as a single-member LLC, the checkbook IRA account structure can be beneficial as account owners have immediate access to funds for making purchases in the competitive world of real estate investing.

How a Checkbook IRA Works

  • Your IRA forms an LLC and is the only (single) member of that LLC
  • The LLC has the benefit of liability protection, comparable to that of a corporation
  • The IRA owner (you) becomes acting manager of the LLC
  • The LLC opens a bank account in its name and funds are deposited into the account from the IRA
  • As manager, you are able to write checks out of the account to acquire investments

Additionally, by using an self-directed IRA LLC, you may avoid administrative fees associated with typical self-directed accounts. This is beneficial if your LLC owns multiple assets—Advanta IRA only charges you for one asset, which, in this case, would simply be the LLC.

Perform Due Diligence

Checkbook control offers great flexibility in the sometimes fast-paced world of real estate investing. Forming an LLC for this purpose adds multiple layers of not just benefits, but risks, as well. You must be aware that these are complicated structures that may be governed by different rules from state-to-state. You may encounter tax liability, limitations on membership, as well as registration restrictions depending on your state.

You also want to ensure that you are fully informed of all of the ins-and-outs single-member LLCs present. Having real estate in a single-member LLC makes it easy to invest quickly, but performing due-diligence regarding your investment decisions is absolutely necessary.

Avoid Prohibited Transactions

Just as you must avoid prohibited transactions in a typical self-directed IRA, so must you avoid them when using a single-member LLC. For example, you (or another disqualified person) are not allowed to vacation in a property owned by your IRA LLC. You also cannot purchase a property from or sell a property to yourself or another disqualified person. Doing so can cause penalties and in some instances disqualification of your retirement account.

The prohibited transactions and disqualified persons section of our web site explains this subject in greater detail Being familiar with the rules regarding these transactions can help you remain in compliance with IRS standards and ensure your potential to build healthy retirement funds when dealing with real estate investment property.

While there are many advantages in using single-member LLCs for investing in real estate, Advanta IRA advises our clients who use these accounts to consult with knowledgeable tax professionals, financial and legal advisors in order to comply with rules in structuring the account properly and ensuring you maintain your account in good standing.

If you have any questions about this article or regarding self-directed IRAs and the investment options available when using these accounts, please contact us.

About Jack Callahan

Jack proudly earned his bachelor’s degree in finance and multinational business from Florida State University and his law degree from the University of Florida College of Law. He established Advanta IRA in 2003 and has steadily nurtured and grown the company and the team every year since. Prior to founding Advanta IRA, Jack delivered specialized counsel to real estate investors, small business owners, and real estate professionals on tax, legal and financial matters. As an industry expert, Jack is a frequent speaker on self-directed retirement plans. He is an accredited continuing education instructor for the Florida and Georgia Bar Associations, Florida and Georgia Real Estate Commissions, and The American Institute of Certified Public Accountants.