The IRA Checkbook
An Individual Retirement Account (IRA) is a powerful tool for retirement savings, and with the right strategy, you can gain more control over your IRA funds and diversify your investment portfolio to include alternative investments such as real estate, precious metals, or crypto. In this blog post, we'll discuss the concept of an IRA checkbook and how to use your self-directed IRA to invest in real estate.
What is an IRA Checkbook? An IRA checkbook is a type of Self-Directed IRA “SDIRA”, that establishes a Limited Liability Company (“LLC”) that the IRA owns. The LLC, in turn, opens a business bank account that allows you to invest directly from your IRA funds towards eligible investments or expenses.
Benefits of an IRA Checkbook. IRA checkbooks allow for greater diversification as you can invest in a wider array of assets in the private market, including real estate, metals, private equity, promissory notes and other assets not offered in standard IRAs. An IRA checkbook is self-directed, and you make investment decisions and execute transactions on behalf of your IRA.
Steps to Create an IRA Checkbook. Creating an IRA checkbook involves several steps, including some that are very complex. The good news is that there are several financial service companies that specialize in helping everyday investors like you or me set up these types of accounts. Below is a brief summary of how to create an IRA Checkbook:
Select A Financial Service Company: Look for a financial institution that offers self-directed IRAs. Not all do, so you'll need to do some research. Make sure the custodian you choose is reputable and has experience with IRA checkbooks. Some companies that provide this service include but are not limited to, Equity Trust, IRA Financial, Rocket Dollar, and Alto IRA. Do your research to compare and determine which company is best for your goals. The financial institution you select should be able to help you with below next steps;
Open SDIRA: Once you've found a custodian, you'll need to open a self-directed IRA. This process is similar to opening a regular IRA. You'll need to provide some personal information and sign some documents.
Fund the SDIRA: Transfer funds into your new self-directed IRA. You can do this by making a contribution, rolling over funds from another IRA, or transferring funds from a 401(k) or similar retirement account.
Create an LLC: The next step is to create a Limited Liability Company. This is the entity that will actually hold the assets of your IRA. You'll need to choose a name for your LLC, file articles of organization with your state, and pay any necessary fees.
Open a Bank Account for the LLC: Once your LLC is set up, you'll need to open a bank account in its name. This is the account you'll use to make investments.
Transfer SDIRA Funds to the LLC: Direct your IRA custodian to invest your IRA funds in the LLC. This usually involves filling out some paperwork. Once the transfer is complete, the funds will be in the LLC's bank account, and you'll be able to write checks or make investments directly from that account.
Invest Wisely: Now that you have an IRA checkbook, you can start investing. Remember, all investments must comply with IRS rules. For example, you can't use your IRA to invest in collectibles or life insurance, and you can't engage in transactions with disqualified persons (like yourself, your spouse, or your children).
Important Considerations. Not all custodians or financial institutions offer checkbook control IRAs, and there are specific rules and regulations established by the Internal Revenue Service (IRS) that must be followed to maintain the tax-advantaged status of your IRA. It is advisable to consult with a qualified tax professional or financial advisor who specializes in self-directed IRAs to ensure compliance with the applicable regulations and make informed, up-to-date decisions regarding your retirement savings.
Also, If you plan to utilize an IRA checkbook in future investments, the process of setting it up from scratch can take 2 to 6 weeks to fully set up and fund, so plan accordingly.
Another consideration is the fees associated with moving your IRA can add up. Many IRA custodians charge an initial set-up fee, an annual administrative fee, and a transaction fee. It’s important to estimate the total cost (i.e., upfront + annual) for the investment period to have a better understanding of the overall IRA Checkbook administrative fee.
In conclusion, you can utilize an IRA checkbook to gain more control over your retirement savings. With proper planning and execution, an IRA checkbook can offer you increased flexibility and convenience in managing your retirement funds. However, it is crucial to consult with professionals, such as tax advisors or financial planners, to ensure compliance with IRS regulations and make informed decisions. This guide provides a general overview, but individual circumstances may vary. Always conduct thorough research and seek professional advice tailored to your specific situation. If you're interested in learning more about IRA checkbook as an investment vehicle, contact us to schedule a call today!
