Checkbook IRA

The ability to possess a checkbook IRA, sometimes known as a single member LLC, is yet another perk to opening a self directed IRA with New Direction IRA. A checkbook IRA is an arrangement where the investor is granted closer control over their IRA funds so they can manage their IRA’s LLC directly. By extension of this control, a checkbook IRA account requires the highest level of diligence and active oversight by the account holder. The IRS has

 

When you create a checkbook IRA, you can use the IRA funds to establish either a single member LLC or any type of corporation listed below, which your IRA  can possess 100% ownership of. The main benefit of a checkbook IRA is the elevated freedom and power granted to the account holder to manage their IRA’s LLC; in addition to the investor’s ability to bypass the fees associated with third party administrative services, since the account holder is in charge of the bookkeeping of their IRA’s LLC.

 

You will still need an IRA custodian to hold the checkbook IRA structure in place. However, you’ll have more lenience on the ability to control the LLC directly.

The corporations that you can create and  manage with your checkbook IRA funds include:

  • Limited Partnerships
  • Limited Liability Companies
  • C-Corps
  • Limited Liability Partnership
  • Land Trusts

 

The logistics of a checkbook IRA are complex and specific in an effort to help the account holder maintain and follow all IRS guidelines. Single member LLCs in an IRA have been identified as high risk in regards to Internal Revenue Code Sections 4975, 408, 408A, and other applicable codes.

 

The “high risk investment” label given to checkbook IRAs by the IRS is primarily attributed to the fact that the responsibility of ensuring your IRA’s LLC follows all legal guidelines and avoids prohibited transactions is a laborious task – hence why it is preferable for many investors to choose an IRA structure for which their IRA administrator can manage the bookkeeping.

 

There is additional risk in the fact that some of the corporations your checkbook IRA can establish include entities where a portion of the controlling interest is held by a disqualified person or persons. These corporations create an elevated risk for error in terms of your checkbook IRA’s LLC providing direct/indirect benefit to a disqualified persons in the eyes of the IRS.

 

To learn more about checkbook IRA’s, please consult New Direction’s checkbook IRA webpage.

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