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Self-Directed IRA with Checkbook Control: How it Works!

self-directed ira with checkbook control what you need to know Horizon Trust

Self-Directed IRA with Checkbook Control (How it Works)

Self-Directed IRA with Checkbook Control

A self-directed IRA can open a world of new investment options. Directed IRA investment puts you in the driver’s seat and grants you control over your retirement. With the assistance of an IRA custodian, account holders can decide where to allocate their retirement funds and select the best assets for ultimate account growth.

While SDIRAs give investors plenty of freedom, there is a way to not only choose your own investments, but to be in control of your funds without third party fees.

“Checkbook” control can grant you immediate access to your funds for quick investments, repairs, and upkeep. If the idea of skipping out on fees and having a direct use of your funds is something that appeals to you, here’s how checkbook control can work for your SDIRA.

self-directed ira with checkbook control what you need to know Horizon Trust

Opening an Limited Liability Company (LLC)

Opening an SDIRA grants you freedom to invest your money how you see fit, however; to access your IRA funds for any purchase, the IRS demands the use of a certified IRA custodian. Regardless of how responsive your custodian is, going through a third party may cause you to miss out on an investment opportunity.

Establishing an LLC allows you to invest your IRA funds and gives you “checkbook control” over your account while avoiding the waiting game.

IRA holders can create a limited liability account using their self-directed IRAs. Essentially, your IRA owns this company, and you as the owner and manager have sole control over the funds. All funds filtered through your LLC are controlled by you, the manager, and you are given direct control of your IRA. This option allows account holders to make quick investments and handle their property efficiently.

It should be noted that your IRA is the owner of the company; therefore, the account cannot be under your personal name. As the “checkbook” holder, you must use the EIN, or employer identification number whenever you use your LLC.

What’s an LLC?

An LLC, or limited liability company functions as a legal entity that can purchase assets. Having an LLC gives you direct access to your funds, so you can make investments, have access for any type of maintenance, and allows you to invest where you see fit. All of these funds are considered part of your IRA – which means all fund for your investments must be filtered through your IRA.

While you have easy access to cash, every cent must be used on your IRA investments only. This is why it is imperative to open your account under your IRA and to keep track of all your purchases. Your personal funds need to be kept separate from your LLC.

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Advantages of Checkbook Control

The main advantage of checkbook control is that it cuts out the middleman. Self-directed funds give investors the opportunity to explore alternative assets, but many of those investments require quick action. Having your funds at the ready is especially useful if you are investing in tax liens, real estate, or anything your plan to purchase at auction.

Going through your IRA custodian requires communication, paperwork, and waiting which may cause you to miss out. Being a member of an LLC allows you to write the check the moment your asset hits the auction block. Investors planning on looking into multiple properties, private shares, tax liens, or precious metals should consider an LLC. It provides added protection and allows managers to truly have control over their investments.

Additionally, a checkbook IRA cuts down on your transaction fees. Without an LLC, every transaction must be handled by your IRA custodian which can rack up unwanted fees. An LLC helps account holders avoid going through an IRA custodian for every transaction. It should be noted that you still need to report your IRA transactions to your custodian, but you are charged for one interaction rather than multiple. If you are looking to invest in any alternative asset that will require many withdrawals, it may be a good idea to consider an LLC.

Disadvantages of an LLC

As the sole manager of an LLC, there is a lot of room for error if you aren’t diligent. You are responsible for your investments and this can be a potential drawback if you aren’t careful. It is possible to make an error with tax requirements, fees, limitations and following IRS regulations. These issues can be avoided if you stay on top of your purchases. Keep an eye on where your money goes and be certain you are following the rules.

All contributions and purchases are for your IRA only – also all investments should be funded through your IRA. Account managers cannot receive compensation for handling their LLC fund, and all annual contributions should be made to the IRA itself.

Avoid prohibited transactions: don’t use the checkbook for personal use, or for any disqualified individual. In addition, account holders should not use personal funds or time on any IRA owned assets. The LLC and personal accounts must be kept separate. If you don’t have the time or focus, an LLC may not be the best option for you.

Due Diligence

Opening an LLC using your IRA account can be an excellent investment if you want to have more control over your retirement fund. With proper research, financial know-how, and accurate recording, you can cut out the middleman. Before taking part in any investment opportunity, be sure you’ve performed your due diligence and select the best path that works for you. Take charge of your retirement; contact our trusted SDIRA Custodians today.

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