Close this search box.

Checkbook Control IRA LLC Adds Protection To Retirement

Reading Time: 5 Minutes

Table of Contents

Did you know a special type of IRA called the Checkbook Control IRA LLC can invest in almost anything?

Most people incorrectly assume the only thing an IRA can invest in are SEC approved securities. There is nothing further from the truth. Although 95% or more IRAs are only invested in securities, the main reason for this is because the BIG Financial houses only steer the average IRA owner to stock trading companies.

The only investments these companies allow are securities and maybe some gold or silver. Also, every time you buy or sell a stock or bond, these companies receive a commission. They are financially motivated to keep you in stocks and bonds.

The Checkbook IRA LLC is Your Best IRA Choice to Gain Control

Unlike a traditional “Wall Street IRA”, there is another investment vehicle you need to be aware of.

You could have a custodian controlled self-directed IRA but it’s not as self-directed as you might think. With a normal self-directed IRA there is a custodian between you and your assets. You have to direct the custodian to write a check from YOUR IRA account to purchase any asset you want to invest in. This has several drawbacks. First, the paperwork takes time to create, review, and approve. Yes, the custodian has to approve what you want to invest in (be it real estate or part ownership in a private business).

If the custodian doesn’t understand the investment, you can spend precious days and weeks trying to convince him or her that it’s a valid investment. And they still might not approve it.

Many people invest their IRAs in real estate. Typically, cash buyers are the most sought after investors in the real estate market. One of the biggest reasons sellers sell a property at a deep discount is because they need cash NOW. But instead of closing the deal in two or three days, you have to ask for custodial permission. And for that, you get to pay the custodian a fee.

Full Checkbook Control

That’s were the Checkbook IRA LLC becomes highly attractive. Your IRA owns a special type of investment LLC. With you as the manager of an asset-holding LLC, you have “Full Checkbook Control” of your IRA. The custodian is out of the loop. Let’s say you find that deep discounted property that needs to close the day after tomorrow. All you need to do is show up at the closing table with a certified check drawn on your IRA account. No approval, no custodians, no fees. Just you and your IRA account.

LLC Adds More Protection to Your IRA

Your retirement account may well be your most valuable asset. Or your most valuable asset second only to your home. You should do everything you can to protect it from lawsuits and bankruptcy. Having a self-directed IRA invest through a Special Purpose LLC might be one of the best ways to add another layer of protection to your IRA that goes beyond the laws that are in place specifically to protect Americans’ retirement accounts.

The primary reason for having a this type of checkbook control is to be able to invest outside of the securities markets. That means owning assets through an IRA. Whenever you make transactions through your IRA you are taking risks. Usually, these are well thought out risks but at times there are unknown risks.

It could be something as simple is not having snow removed from an apartment building parking lot in a timely manner. Or perhaps the tenants slip and injure themselves. The tenants might think as a property owner you are a big rich tycoon and come after you and all your assets. For the same reason that you place business ownership of the apartment building in a LLC, your self-directed IRA needs legal ownership with a LLC. A checkbook control retirement account could offer you greater asset and creditor protection versus making the investment directly through the IRA.

Those three tenants that slipped in the snow can likely go after the assets of the LLC. However, there is a good probability that other assets owned by the IRA will be protected from a lawsuit.

IRA LLC Tax-Court Tested

There are some specific regulations that you need to always be in compliance with your Checkbook IRA LLC. This applies to both the Special Purpose structure between the IRA and the LLC and the transactions the LLC makes on behalf of the IRA. All of the legal requirements that apply to a self-directed IRA also apply to an IRA LLC. These include prohibited transactions and dealings with disqualified people.

There are abundant laws, cases, and regulations analyzing if your IRA can own a LLC.

Despite some complexity, your IRA can own 100% of an LLC. As long as you (the IRA owner) don’t take any compensation from the LLC, you may serve as the manager of the LLC. This effectively gives you “checkbook control” of your IRA. This is originally supported by the lawsuit of Swanson v. Commissioner, 106 T.C. 76 in 1996. The U.S. Tax Court ruled that it’s NOT a prohibited transaction for a retirement plan to invest and own 100% of a newly created corporation. NOR is it a prohibited transaction for the IRA owner to serve as an officer of that company as long as no salary or compensation is paid to the IRA owner.

Checkbook Control IRA Legal Considerations

Furthermore, in an April, 2001 IRS Field Advisory, the IRS indicated the IRS will not consider it a prohibited transaction when there is a newly formed and capitalized company that is 100% owned by a retirement plan. The key here is “NEWLY CREATED” for the benefit of the IRA. These rulings DO NOT deal with existing companies that the IRA owner previously established. This would be a prohibited transaction because the IRA owner would benefit from the sale of an existing business and in a roundabout way still own the business through his or her IRA.

Keep in mind when setting up your IRA LLC that the LLC must always be a newly created entity. You cannot use an LLC you already own with your IRA. The Nabers Group team is happy to form this new LLC for your IRA to ensure you setup to win with compliance in your structure!

Prohibited Transactions

Although you can manage the LLC, you still must abide by the prohibited transactions rules. These include who the company can do business with (no close relatives). Just as importantly, it limits the work you can do for the LLC. While you can perform administrative work, including writing checks, you can’t perform work on the LLC’s behalf.

For example, if you invest in real estate, you can’t do any remodeling or repairs on the property owned by your IRA LLC. This has been known as “how a gallon of paint cost you your retirement account.” You can’t so much as paint the interior walls or you’ll be in violation of a prohibited transaction. There aren’t a lot of prohibited transactions but you need to fully understand them and comply with them when you have checkbook control of your IRA.

The Checkbook IRA LLC is specifically and legally designed to keep you in compliance with these requirements. In the end, checkbook control of your IRA is a powerful tool for dramatically growing your retirement account but there are specific rules that you must follow to stay on the right side of the IRS code.

Let us help!

Have questions about a Checkbook IRA LLC? The experts at Nabers group will help you get your retirement funds into your control, where they belong. Contact us here.

Disclaimer: These resources are provided as a convenience and for informational purposes only. They do not constitute an endorsement or an approval by Nabers Group LLC of any of the products, services, or opinions of any corporation, organization, or individual. Nabers Group LLC bears no responsibility for the accuracy, legality, or content.

Leave a Reply

Your email address will not be published. Required fields are marked *

Solo 401k

$499 one-time setup
What You Get

Use the chat on the bottom right or call us at (877) 765-6401