Explaining the Self-Directed IRA Checkbook LLC

May 7, 2024 By: Sari Adler0 comments

A retirement account and a checkbook. To many people, the two phrases might sound like they mix as well as oil and water. If you have a Self-Directed IRA, you know how important it is to separate your personal finances from your retirement investments. But there is one legal, fully-allowed and valid use of a checkbook within an IRA. It’s known as the “Checkbook” Self-Directed IRA LLC.
In this kind of arrangement, you’ll use a Self-Directed IRA to hold a Single Member LLC. That Single Member LLC can hold its own checkbook. And because the IRA holds it, the control over that checkbook reverts to you. Make sense? If not, let’s break it down and explain how a Checkbook Self-Directed IRA LLC works.

Where Does the Checkbook Self-Directed IRA LLC Come From?

As you can see at our Checkbook Self-Directed IRA LLC “How it Works” page, the concept of a Self-Directed IRA Owned LLC has its roots in a significant court case: Swanson versus the Commissioner. In this ruling, the tax court held that an IRA’s initial investment in a corporation wasn’t a prohibited transaction. It might not seem like much, but it represented a sea change to some investors.. Specifically, the court ruled that if the IRA is the first investor in an entity, such as an LLC or a C-Corporation, it doesn’t violate IRS regulations. This ruling, in addition to Field Service Advisory 2001-28011, clarified that these are allowable investments when handled the right way.

The Advantages of Using a Checkbook Self-Directed IRA LLC

One of the most notable features of a Checkbook Self-Directed IRA LLC? Its tax treatment. For tax filing purposes, the LLC is considered a single-member entity. This simplifies the process as it doesn’t require separate tax filings. Instead, the IRA owner is responsible for any tax obligations. For example, they might have to file Form 990T if unrelated business taxable income (UBTI) or unrelated debt-financed income (UDFI) taxes are generated.

This adds to the advantage of investing this way, because it means that the entity is very simple to manage once it’s set up.

Why Choose a Checkbook Self-Directed IRA LLC?

This style of investing means one thing: flexibility. You’ll have the flexibility to diversify retirement portfolios beyond traditional assets. From real estate investments to tax liens, precious metals, trust deeds, and private company shares, the Checkbook Self-Directed IRA LLC makes it easy to write checks for assets you can hold in retirement.

The structure can also mean reduced fees and expedited investment placement. Traditional Self-Directed IRAs managed through custodians are still prevalent. But the Checkbook Self-Directed IRA LLC is increasing in popularity thanks its cost-effectiveness and efficiency. You can bypass custodial fees and streamline the investment process. And if you’re a savvy investor, that means you can capitalize on time-sensitive opportunities, such as real estate transactions and tax lien purchases, in the way you see fit—provided you follow the IRA investing rules.

Is It Time for a Checkbook Self-Directed IRA LLC?

Let’s be clear: operating a Checkbook Self-Directed IRA LLC requires careful adherence to IRS regulations. You have to avoid penalties and the disqualification of the retirement account. Investors will need to ensure compliance with prohibited transaction rules especially, making sure that they don’t use the checkbook as an excuse to break these rules.

The Checkbook Self-Directed IRA LLC is clearly a powerful style of investing. But you can’t realize its benefits until you set one up for yourself. Is it time for you to consider one? If so, reach out to TurnKey IRA today by dialing us at 844-8876-IRA (472).