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Turn Key IRA LLC

ABOUT THE self directed LLC (aka Checkbook IRA)

What is a self directed IRA LLC? A self directed IRA LLC is an individual retirement account that allows the account holder a freer reign in choosing how to invest their retirement funds. It also allows for a wider range of investment vehicles, eg, real estate, mutual funds, stocks, bonds, REITs, etc.).
The self directed IRA LLC is commonly referred to as a Checkbook IRA because the account holder is the manager of the account. As such, they have fund an investment by simply writing a check. No custodial approval is needed.

Following are some of the components of a self directed IRA LLC, from inception to investment. 

a) An account holder opens an IRA account with a self directed custodian and transfers pre-existing retirement funds into it.

b) The account holder creates a Special Purpose LLC names themselves as its LLC manager.

c) The account holder directs the account custodian to invest some or all of the IRA funds into the newly created LLC. The LLC further invests its funds, often into real estate, private companies or mortgage notes. The LLC is owned by the IRA, but is managed by the IRA accountholder who is the authorized signor on all LLC accounts.
 

Why would an account holder want checkbook control?

For a number of reasons, specifically:

*The elimination of transaction-based custodian fees
*Instant processing of applicable transactions
*Eliminate custodial control over legally allowable investments
*The ability to Invest in stock market with margin
*The ability to Invest in foreign assets with more ease

Who would not want checkbook control?

This is where confusion and disagreement occurs about the self directed IRA LLC.

Argument Against: The argument against checkbook control is based on compliance, mostly with prohibited transactions, which usually refer to “self-dealing” transactions. Self dealing refers to the  account holder who uses account funds to buy, sell, or otherwise enter into a transaction with a disqualified person.

A disqualified person is anyone who is related to the account holder and/or who provides services to the retirement account. The argument usually progress in the following fashion:

“Prohibited transactions are costly. Without a custodian overseeing your transactions, you are at higher risk of doing a prohibited transaction and paying large tax penalties as a consequence.”

I always do my best to maintain an objective, balanced viewpoint. In light of the above argument, I formed the opinion that it’s good for some people to have checkbook control and risky for others. Therefore, whether checkbook control is appropriate is dependent on the circumstances of the account holder. I operated under this thinking for over a year…

However, I have learned more about the actual matter at hand… and have come to a completely different conclusion.

Argument For: Here are the newly discovered facts:

a) A custodian cannot advise you on whether a proposed transaction is in compliance. It is a legal matter, and only an attorney can give you legal information from which to make an informed decision.

b) A custodian will not allow you to open an account unless you hold them harmless for their guidance and actions relating to prohibited transactions and legal compliance.

c) In every retirement account, the person solely responsible for prohibited transaction compliance is the decision maker (aka fiduciary - the one who has discretion over how plan assets are invested). A custodian is not a fiduciary. As the account holder, you make the decisions, the fiduciary only follows through with them.

d) In the event of a prohibited transaction in a self directed account, the account holder will suffer the consequences, regardless of whether they had/have checkbook control.

Overall, sub-point d is perhaps the most important. It highlights the fact that even if you don’t have checkbook control, you still suffer the consequences of ill-fated actions in terms of prohibitive transactions.

Get the Facts and Stay Informed about self directed IRA LLCs (Checkbook Accounts)

Stay informed by getting the facts and making your own decision. If you still think it best to transact at the custodial level, then proceed. Millions of people still think it best to invest mostly in mutual funds.

The bottom line is, don’t get bogged down in account structuring. Get the facts, make your decision and move on to the fun part finding and making the investments.