How to Manage Your Self-Directed IRA with Checkbook Control

by Banking Published on: 22 September 2018 Last Updated on: 17 March 2020

What is a Self-Directed IRA with Checkbook Control?

Unlike a traditional IRA that allows individuals to create a retirement reserve on a tax-deferred basis through a custodian, a self-directed individual retirement account gives the IRA owner complete control over the retirement account. This eliminates the need for a custodian and allows complete freedom to sign checks and access funds. So, if you opt for a checkbook control IRA, you can manage all your savings and investments while saving yourself thousands of dollars in custodian fees. You can opt for this strategy by establishing a Self-Directed IRA LLC.

Your LLC can be funded using your retirement assets like an IRA. This wouldfurtherfundtheLLC’scheckingaccount, giving you greater investment freedom tobuild a bigger nest egg, thereby securing your retirement financially.

How Does it Work? 

Once you have established a new LLC, the general manager will set up a business checking account using a copy of your Articles of Organization along with your tax ID number. You can also elect yourself as the Managing Member of your LLC under the expert guidance of your legal counsel. This will allow you to exercise complete authortiy over your self-directed IRA funds.

However, if you are a self-directed IRA holder, this process would need an additional step to direct the custodian to execute a specific transaction and this will cost you money. With checkbook control IRA, you take over the responsibilities of your custodian and manage your own acount. This brings you the freedom to diversify your investment portfolio and invest in stocks, bonds, real estate, precious metals, tax liens, and crypto currencies without needing the consent of a custodian to execute any of these transactions.

The Legalities Concerning Checkbook Control IRA 

The IRS doesn’t like it when individuals are allowed this kind of autonomy over their self-directed IRAs. In fact, they even pursued the matter in the court to stop the practice, however, they lost the case. This decision was later upheld in 2013, where the critical question at the centre of the lawsuit was whether or not using an LLC managed by a beneficiary to execute trades was a prohibited transaction. As long as the transaction does not violate any of the other IRS restrictions on prohibited transactions, it is not in violation of any tax code that the IRS enforces.

Advantages of Checkbook Control

Let us look at the 3 major advantages that accompany checkbook control IRA:

1. Total Control over Investments:

If you are sure that a specific  investment will give you good returns, then purchasing it is as easy as writing a bank check. With checkbook control IRA, you don’t need to perform any paperwork or wait for your custodian or rely on an adminstrator to wire the funds! This feature is particularly helpful when you are presented with a profitable investment vehicle that has a specific timeframe or when you want to purchase an item that is on auction without any delay.

2. Less Adminstrative Fees:

Checkbook control IRA helps in avoiding various fees including the administrative and transaction fees associated with a self-directed IRA. Even if you hold several investments in your LLC, the administrator will only charge you for one asset. However, the administrative costs may vary, depending on the type of investment you have chosen.

3. Due Diligence:

While checkbook control IRA gives you ultimate financial freedom, it is not without potential risks. So, if you don’t want to unknowingly trigger any of the tax penalties or prohibited transactions that are flagged by the IRS, you should be aware of all the withdrawal requirements and investment restrictions that apply to enjoy tax-deferred capital gains.

It is always a good idea to seek the advice of a trusted and experienced financial advisor who can help you make the right investment decisions and avoid jeopardizing any tax advantages.

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Ariana Smith is a blogger who loves to write about anything that is related to business and marketing, She also has interest in entrepreneurship & Digital marketing world including social media & advertising.

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