A checkbook control IRA, also known as a checkbook IRA, is the common term for an investment strategy when a self-directed IRA account owner uses a single-member LLC to invest. Doing so gives the account owner greater control over their retirement funds. The IRA owner can write checks immediately and directly from the LLC account to invest, receive and deposit income, and pay expenses associated with the investments held in the LLC.
These account structures can hold one asset or multiple assets. They are somewhat complex structures so it’s important to understand how they work and be familiar with rules that govern IRAs and LLCs. Below are frequently asked questions and answers you need to know about how a checkbook control IRA works.
Answers to Your Questions about How a Checkbook Control IRA Works
What are the benefits of using a checkbook IRA?
The benefits of a checkbook control IRA include: the ability to invest in alternative assets to the stock market, the convenience to make your own 
deposits and write checks, the ability to purchase assets quickly (like at an auction for tax liens), and the potential to save IRA administrative costs by holding all assets in one LLC.
Who owns the investment?
All assets must be titled in the name of the LLC.
What investments are allowed in a single-member LLC?
All types of assets are permissible in these accounts. However, the most common investments are real estate assets that include:
- Multifamily properties such as duplexes and triplexes, condominiums, etc.
- Real estate syndications
- Tax liens and deeds
- Check or deposit-intense assets like fix-and-flips
- Multiple rental properties
Are there any assets I can’t invest in with my checkbook IRA?
The alternative asset class is vast, but the IRS does prohibit a few investments in IRAs. Common prohibited assets include:
- Artwork
- Rugs
- Antiques
- Certain types of precious metals
- Gems
- Stamps
- Specific types of coins
- Alcoholic beverages
- Life insurance contracts
Where does investment income go?
All income gained from assets in the checkbook control IRA is deposited into the checkbook IRA LLC. You’re unable to personally receive this income or your IRA will lose its tax-sheltered status and incur penalties on top of a tax liability.
How are expenses relevant to the investment paid?
You must pay all costs associated to IRA LLC-owned investments with funds from your checkbook IRA.
What accounts can be used to form a checkbook IRA?
- Traditional and Roth IRAs
- SEP and SIMPLE IRAs and solo 401(k)s
- Coverdell Education Savings Accounts ESAs)
- Health Savings Accounts (HSAs)
How do I set up a checkbook control IRA?
- Your IRA forms an LLC and is the only (single) member of that LLC.
- The IRA owner (you) or someone else you designate, is named as the 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 can write checks out of the account to invest.
Are there investment rules account owners should follow?
You should understand all IRA rules including prohibited transactions and disqualified persons relevant to investments.
For example, your checkbook IRA may not purchase property from or sell property to you or a disqualified person. You and other disqualified persons are prohibited from renting or vacationing in property owned by your IRA.
If your IRA commits a prohibited transaction or invests in a prohibited asset, the account will lose its tax-sheltered status. Taxation and penalties are also levied for prohibited transactions. Learn more about penalties and tax for prohibited transactions in IRC 4975.
What are the responsibilities of managing the LLC?
As manager of the LLC, you are responsible for maintaining accurate records and following compliance regulations pertaining to the LLC.
Can I receive compensation for managing the LLC?
No. As the IRA owner, you are prohibited from receiving compensation because the LLC and your IRA are structured solely to help you earn income for your retirement. You’re prohibited from receiving any current benefit relevant to the assets held in the LLC, including income or even staying in property owned by the account.
I have more than one retirement plan. Can I use them in one LLC?
It is possible to combine multiple IRAs into one LLC, allowing for one checkbook for multiple accounts. Consult with your tax professional for guidance and to navigate the rules for doing so.
How do I get started?
Advanta IRA is a self-directed services provider with over $2 billion in client assets under management. Many of our clients know how a checkbook control IRA works and use this investing structure to their advantage to build retirement wealth. We provide administrative support for your IRA and help you navigate the investment process, but we cannot set up the LLC. It’s important to seek guidance from your tax professional who can help you form the entity in compliance with IRS regulations. You can also find people who are familiar with self-directed IRAs and alternative investments by visiting the professional resources section of our website.
If you have any questions about how a checkbook control works or to begin the process of opening an account, contact Advanta IRA today.
