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A Self-Directed Checkbook IRA is a key retirement strategy for many investors. But who is most likely to benefit from this type of arrangement, and why is that the case? In this article, we’ll explore the types of investors who often benefit from a Checkbook IRA. Although a Self-Directed Checkbook IRA is a highly independent style of investing and a Self-Directed IRA administration firm won’t be advising you on where to put your money, it often helps to know what sorts of strategies cause investors to seek out a Checkbook IRA in the first place.
With a Self-Directed Checkbook IRA, you’ll establish a Self-Directed IRA with a Self-Directed IRA administration firm, then using a Single Member LLC within that account to exercise the checkbook control that we talk about with a Checkbook IRA. Technically, the IRA is the owner of the Single Member LLC—but you’re the one with the control.
It might sound confusing, but the end result is simple: you’ll have checkbook control over an LLC account that falls under your retirement assets. This means that you not only have more flexibility with retirement investing, but also more responsibility. As such, it might suit your individual investment style. Others may find that they have to adapt to this sort of style to realize the benefits.
This is a wide-ranging answer, because there’s no accounting for all of the various retirement investment strategies out there. But we think that your experience and investment style play big parts in the benefits of a Self-Directed Checkbook IRA. For example, an investor with a strong background in investing in real estate will be able to utilize that experience when investing in real estate within a retirement account. And using a Checkbook IRA will help them practice the kind of independence they need to make investments as they choose it, with the convenience of simply writing a check.
This isn’t to say that the benefits of a Self-Directed Checkbook IRA are limited to real estate investors. This is just one example, and there are plenty of examples of asset classes that might apply here.
Now that we’ve answered who stands to benefit most from a Self-Directed Checkbook IRA, we also have to look at another side of the equation: the people who should not benefit directly from a Checkbook IRA. Keep in mind that there may be family members who may benefit from the fact that someone in their family has done a good job with retirement planning and built up a secure portfolio. But we’re talking about a specific type of benefit known as a prohibited transaction.
In retirement accounts, a prohibited transaction refers to a transaction between the retirement account and either the account holder, or a “disqualified person” in relation to the account holder. For example, if you were to purchase a property with your Self-Directed Checkbook IRA, you could not then turn around and rent out that property to a son, daughter, or other disqualified person. Similarly, other property within an IRA—such as a private note—could not transact with these disqualified persons.
Who benefits most from a Self-Directed Checkbook IRA? If you do it right, you will! But it’s important to know that the Checkbook IRA is a particular strategy that does tend to suit some strategies over others. Or, you may find that if you want to incorporate a Checkbook IRA strategy into your overall portfolio, it can even benefit a retirement investor with multiple interests and avenues of generating wealth.