A quick check, a signature, and you’ve done it. You’ve invested in real estate within your retirement account. Maybe these two ideas don’t seem like they should go hand-in-hand—the idea of a checkbook investment from a tax-protected retirement account—but that’s exactly what you can do if you know how to establish a Checkbook IRA for alternative investments like real estate. There are just a few things you should know before you begin this arrangement. Let’s explore.
The Benefits of Real Estate in a Checkbook IRA
One of the biggest draws of a Checkbook IRA is its flexibility. Real estate investors can benefit from quick access to funds when they write checks. If a prime opportunity comes along, they can invest at the speed of their checkbook. Additionally, holding real estate within your IRA can provide significant tax benefits, as the income generated by your properties (such as rental income) can grow in a tax-deferred (Traditional IRA) or tax-free (Roth IRA) account.
Additionally, the Self-Directed Checkbook IRA is easy to understand. Your checkbook will belong to a Single Member LLC that your IRA holds. That’s what gives checkbook control back to you, the IRA holder.
Potential Challenges to Consider
While the benefits of real estate investing within a Checkbook IRA are compelling, it never hurts to be aware of the potential challenges involved. For one, all expenses related to your real estate investments need to come directly from your IRA, not from your personal funds. If repairs, property taxes, or other expenses arise, your IRA needs to have enough liquidity to cover them.
You also can’t use the property for personal purposes, like staying in a vacation home owned by your Checkbook IRA. Doing so would trigger what the IRS considers a “prohibited transaction.” And that could put your entire retirement account at risk.
Another consideration? The need for careful record-keeping and adherence to IRS rules regarding Self-Directed IRAs. Since you’re in control of your investments, the responsibility falls on you to track your transactions, maintain sufficient documentation, and ensure that you’re following IRS regulations.
Setting Up Your Checkbook IRA for Real Estate
To start investing in real estate with a Checkbook IRA, you’ll first need to establish an LLC specifically for your IRA. This LLC will serve as the holding company for your real estate investments, allowing you to maintain the “checkbook control” you need. From there, your Self-Directed IRA will own the LLC, and you’ll act as the manager, giving you the ability to make investment decisions within IRS guidelines.
It’s advisable to work with professionals during the setup process to ensure your Checkbook IRA is fully compliant with IRS regulations. An attorney can help you establish the LLC the right way, while an experienced Self-Directed IRA custodian can guide you through the setup process and answer any questions you might have along the way.
A Checkbook IRA opens all sorts of possibilities for real estate investing within a retirement account. It combines tax benefits with the flexibility of self-directed management. However, it also requires diligent management. And a clear understanding of IRS regulations will be important, too. By planning carefully and consulting with experts, you can take advantage of this unique investment strategy and create lasting value for your retirement.
Contact TurnKey IRA at 844-8876-IRA (472) for a free consultation. Download our free guide or visit us online at www.turnkeyira.com.
