By J.P. Dahdah, Founder & CEO of Vantage
You have a Self-Directed IRA. You have the confidence and knowledge to make your own investment decisions. And you want to take your investment strategy further.
Meet the Checkbook IRA.
An IRA structure that allows you full control over your investments. You see investment opportunities. You file the paperwork. And you manage all the transactions in and out of your IRA account.
Let’s look at some of the benefits and complexities of Checkbook IRAs.
The Checkbook IRA owned LLC has several benefits.
First, the Checkbook IRA affords the most diversification. Within a single IRA account, you can hold multiple assets. Want to purchase real estate? Buy it. Want to invest in a private company? Do it. Want to loan money to a friend? Write that promissory note.
All under one IRA account.
Second, there are fewer transaction fees. Since you’re handling all the transactions yourself, you don’t have to pay your custodian to purchase your assets for you.
And since you can hold multiple assets in a single IRA account, you only have to pay annual fees for that one account.
Third, you can make purchases as soon as you find the investments you want. Because you have “checkbook control,” you can make investments directly from your IRA’s business bank account without delay.
Fourth, the LLC structure provides asset protection.
For example, if you have a rental property and a tenant is injured on that property, they might sue you for damages. Having a Checkbook IRA as the owner of that property protects you and your assets from personal liability.
The Checkbook IRA has complexities.
Which is why we consider this an advanced investment strategy. Because you are responsible for the proper setup and management of your IRA assets, you have to have a clear understanding of the operational rules and regulations involved with this type of account.
Setup includes, but is not limited to, the following:
- Forming a new LLC (it cannot be an existing LLC)
- Opening a business banking account
- Defining the manager of the LLC
- Ensuring 100% of the LLC’s business units are owned by IRA
Management includes, but is not limited to, the following:
- Filing the proper paperwork to invest in assets
- Making sure transactions flow in and out of your business banking account
- Managing the manager of the LLC (if you are not the manager)
- Tracking expenses
- Providing Fair Market Value (FMV) to the IRS on each asset in your IRA LLC
This doesn’t mean you don’t need a custodian. You still need to have an administrator, like Vantage. It just means that you can hold and manage multiple assets within one IRA account.
That said, we recommend seeking professional guidance when setting up these types of IRAs. They do not operate like traditional LLCs that you may be familiar with.
At Vantage, we make sure our clients take the proper steps to set up their Checkbook IRAs. And we ensure they meet all their IRS filing deadlines, as well as regulatory guidelines.
But at the end of the day, you are responsible for making the decisions for your Self-Directed IRA account.
How to open a Self-Directed Checkbook IRA
As we mentioned, the Checkbook IRA, or IRA LLC, is a great advanced investment strategy. While it isn’t for everyone, it is perfect for the investor who wants full control over and maximum diversity in their IRA portfolio.
To learn more about the Checkbook IRA structure, visit our Vbytes page and download your free Guide to the Ultimate Self-Directed IRA Structure.
If you have questions about this IRA structure and whether it’s right for you, please call us at 866-459-4580, and one of our IRA Specialists will be happy to help.