Forming a limited liability company (LLC) with your self-directed IRA is a great example of how self-direction offers complete control over your retirement savings and investing decisions. A single-member LLC or checkbook control IRA structure is favored by account owners who want immediate access to funds for investing in competitive markets like real estate. These accounts also allow you to invest in all other alternative assets, as well.
How to Set Up a Single-Member LLC
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- Your self-directed 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 single-member LLC.
- You open a bank account in the LLC’s name and deposit funds from your IRA into the account.
- Investments are purchased with funds from the IRA-LLC bank account and are titled in the name of the LLC.
4 Benefits of Single-Member LLCs with Checkbook Control
1. Write checks to purchase investments and to pay expenses.
As manager of the single-member LLC, you can write checks from the IRA-LLC bank account to buy investments. Investments are owned by the LLC and titled in the LLC’s name.
2. Invest ahead of the competition.
The ability to write a check on the spot instead of having to wait for your self-directed IRA services provider to submit funds for an investment is a big plus. In competitive markets like real estate, having cash at your fingertips is critical to help your score that sweet rental or rehab deal.
3. Pay bills directly from account funds. 
Checkbook control allows for more than just timely investing. You can also pay bills associated to your investments directly from your retirement funds in the IRA-LLC bank account. This is key—as all IRA investment-related expenses must be paid with IRA funds. So, the ability to write checks yourself from your checkbook IRA funds to pay for expenses saves steps and the time you’d have to wait for your self-directed IRA provider to do for you.
4. Save on IRA administrative fees.
By using a single-member LLC with checkbook control, you may avoid administrative fees associated with a typical self-directed IRA account. This is beneficial if your LLC owns multiple assets. For example, Advanta IRA only charges you for one asset, which, in this case, is the LLC—regardless of how many assets the LLC acquires. The caveat is the LLC may incur additional fees on its own, so make sure you do the math to ensure this investing structure is a good fit for your needs and budget.
Perform Due Diligence before Opening a Single-Member LLC
Checkbook control IRAs offer great flexibility in the sometimes fast-paced world of investing. Forming an LLC to invest adds multiple layers of not just benefits, but risks, as well.
Know the rules that govern single-member LLCs in your state.
You must understand single-member LLCs used as checkbook IRAs are complex 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.
Research the investment and all involved.
A checkbook IRA makes it easy to invest quickly, but performing due diligence regarding your investments is absolutely necessary to do your best to achieve desired returns and to avoid fraud. This means fully vetting the investment and people (broker, individual, entity) offering the opportunity.
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 or checkbook control IRA entity.
For example, you (or another disqualified person) are not allowed to vacation in a property owned by your IRA and/or your single-member LLC. The IRA-LLC 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. You can find more information on prohibited transactions in IRC 4975.
Being familiar with IRS rules regarding these transactions can help you remain in compliance with IRS standards and ensure your potential to build healthy retirement funds using this investing structure.
Closing Thoughts from Advanta IRA
While there are many advantages in using single-member LLCs for investing in real estate and other alternative assets, Advanta IRA advises our clients who use these accounts to consult with knowledgeable tax professionals, financial, and/or legal advisors 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 alternative investments available when using these accounts, please contact Advanta IRA.
Additional resources on single-member LLCs and checkbook control:
FAQs about How a Checkbook Control IRA Works
Build Wealth Your Way with a Checkbook Control IRA
The Smart Strategy of Real Estate in a Self-Directed IRA
This article was written in its entirety by a human.
