Admit it: you’ve been afraid to set up a Checkbook IRA because you’re afraid of making a mistake. We don’t blame you. A lot of investors avoid the simple arrangement of a Checkbook IRA because they think it’s too complicated to handle. But if you know more about how an IRA administration firm can help, and if you understand how to avoid the pitfalls novice investors often encounter, you’ll be ahead of the pack. Let’s zoom in on Checkbook IRAs, their most common mistakes, and how you can avoid stepping on your toes as you set up a Checkbook IRA for yourself.
Defining the Checkbook IRA
The Checkbook IRA is a Self-Directed IRA that gives you complete control over your investments. Instead of relying on an administrator to make every transaction for you, you can write checks directly from the IRA account. This lets you make quick, strategic moves without waiting for approval or incurring administrative fees.
Mistake #1: Mixing Personal and IRA Funds
One of the most common mistakes investors make with a Checkbook IRA? Mixing personal funds with IRA funds. When you create a Checkbook IRA, you need to always keep your personal and IRA accounts completely separate. Any mixing of funds can lead to serious tax consequences and even penalties, since the IRS may consider some investments “personal” when you intended them as “retirement” investments.
Your IRA is a separate entity, after all. All retirement transactions should be conducted through that account.
Mistake #2: Not Following IRS Rules for Investment Choices
Another common pitfall is investing in prohibited assets. With a Self-Directed IRA, you have the freedom to choose your investments, from real estate to precious metals, but there are strict rules about what you can and cannot invest in. For example, you cannot use your Checkbook IRA to invest in collectibles like artwork or antiques.
And always avoid transactions that involve disqualified persons, such as family members or even yourself. If you’re not careful with your investment choices, you could end up violating IRS rules and facing penalties because the investments were considered personal investments.
Mistake #3: Forgetting to Document Everything
Documentation is always key. That’s especially true with Checkbook IRAs. You’ll need to keep detailed records of every transaction to prove that you’re complying with IRS regulations.
Failing to document investments, sales, or any movement of funds could cause issues down the road if you ever face an audit. Keep receipts for any expenses paid by the IRA, such as maintenance costs for a property or fees for a legal transaction. A lack of documentation can lead to confusion and the potential disqualification of your IRA.
Mistake #4: Not Seeking Professional Advice
A Checkbook IRA gives you the flexibility to invest as you choose, but it’s not a “set it and forget it” investment strategy. It’s a proactive strategy that suits proactive investors.
Many investors make the mistake of trying to manage everything themselves without seeking professional advice. And while having control over your investments is a huge benefit, it can also be overwhelming if you’re not careful to get some additional advice. Consult with professionals—like a tax advisor or an IRA administrator—to ensure you’re following the correct procedures. The right advice can help you avoid costly mistakes and maximize the potential of your Checkbook IRA.
Want to know more about how TurnKey IRA helps investors set up Checkbook IRAs? Want to know more about Checkbook IRAs in the first place? You can find the answers to all of your questions by dialing us at 844-8876-IRA (472) today.
Imagine a life where your retirement investments feel as easy to make as any other investment. Sure, rules are separating the two, but once you have a Checkbook IRA in place, you’d be surprised how natural it can feel to make retirement investments. Interested in learning more? Contact TurnKey IRA at 844-8876-IRA (472) for a free consultation. Download our free guide or visit us online at www.turnkeyira.com.
