How Does a Checkbook IRA Work?
A checkbook IRA is a powerful investing tool that gives the account owner complete signing authority (checkbook control) over their account. This strategy gives the IRA owner checkbook control over their retirement funds by using a single-member limited liability company (LLC) to invest. The account owner can write checks directly from their IRA funds to make investments.
This account structure is ideal if you need fast access to your funds to make new investments. It also makes it easier to invest in multiple assets, receive and deposit income, and to pay bills for your IRA investments.
WHAT IS CHECKBOOK CONTROL?
Checkbook control provides you—the self-directed IRA owner— with greater control of your funds. With a checkbook IRA, you can write checks from your retirement funds to invest quickly and pay bills related to your assets. Watch this video to learn more.
Top Benefits of a Checkbook IRA
- Control – Make your own investment decisions
- Speed – Acquire assets as quickly as you can write a check
- Freedom– Allows you to deposit income and pay bills for the asset
- Flexibility – Ease in buying and managing multiple assets
- Savings – Can reduce some costs associated with a self-directed IRA
- Protection – LLC owners may enjoy better legal protection for their assets
Popular Assets Held in a Checkbook IRA
- Real estate investments
- Tax certificates
- Check or deposit-intense assets like renovations
- Multiple rentals
Other assets besides real estate are permissible in these accounts, as well.
FOUR STEPS TO SET UP A CHECKBOOK IRA
- Open and fund a self-directed IRA
- Form a single-member LLC with your IRA as the sole member
- Appoint yourself as the manager of the LLC, and open a bank account in the LLC’s name
- Fund the new LLC with cash from your IRA
Once your LLC has cash in a bank account, you can start investing.
Rules for Single-Member LLCs
- As manager of the LLC, you should know all IRA rules including prohibited transactions and disqualified persons.
- It may be possible to combine multiple IRAs into one LLC, allowing one checkbook for multiple accounts.
- As the IRA custodian, Advanta IRA holds the LLC membership interest, but Advanta IRA does not set up the LLC.
- Single-member LLCs are not a necessity because the IRA administrator holds title to the assets. However, many individuals do find them more convenient to use.
- As the manager of the LLC, you must do all the accounting for the LLC.
- Consult with your accountant or tax professional to ensure proper structure and maintenance of these accounts.
- Although this type of entity can be more convenient and cost-effective. The IRA owner is responsible for all investment decisions and for ensuring that the LLC is not violating the rules on prohibited transactions. The manager of the LLC must also keep accurate and proper records for any possible IRS scrutiny.
- The IRA owner is prohibited from receiving any salary or compensation from the LLC.
- As of January 1, 2024, the beneficial owners of most LLCs, corporations, or other entities owned by retirement plans, must file a Beneficial Owner Information (BOI) report.
While these investing accounts can be flexible, there may be some risks. There is an increased potential of performing a prohibited transaction. Additionally, there may be tax-filing requirements depending upon the laws in your state. Investors pursuing this option should check with a legal advisor to make sure the LLC is set-up correctly.
Be cautious of companies that offer a checkbook IRA LLC setup package. That can cost more than a using an attorney or CPA to set up your LLC and having Advanta IRA administer it. Contact Advanta IRA to learn more.