Checkbook IRA LLC FAQ

Below you will find some of the most common questions and answers about the IRA LLC strategy.

What is a Checkbook IRA LLC?

A Checkbook IRA LLC is a legal Limited Liability Company (LLC) and functions just like a “typical” LLC with which you are familiar. It will be assigned a tax ID number. This tax ID number will be used to set up a business checking account for the IRA LLC, just like any business would.

How is an IRA LLC different than a regular LLC?

The difference is in how the entity is owned and where the money comes from.

  1. The “member” of the LLC is your IRA, not you as a person, and the IRS requires that the ownership be titled like this: M2 Trust Services, FBO (Your Name) IRA Account # 123456. M2 Trust Services is your custodian. FBO means “for the benefit of.” Your IRA account number is what will be used.
  2. The monies used to fund the IRA LLC must come from your retirement account and cannot be combined with any personal money.

Simply put, the LLC will be owned by the IRA. The LLC will be managed by you, the IRA owner.

What is the Name of my Checkbook IRA LLC?

You can name it anything you want if the name has not already been used by someone else. For illustration purposes, let’s name the LLC “Loving Retired Life, LLC.”

How do I Get Money into the IRA LLC Checking Account?

You choose the amount of money you want moved from your retirement account into the IRA LLC checking account and direct the Custodian to do so. You, as manager, control the checking account.  This allows you to make investments by simply writing a check directly from the IRA LLC bank account. This is where the term “checkbook control” comes from.

How do I Make Investments with my Checkbook IRA?

You, as manager, buy and sell investments within your IRA LLC just like you would within any “typical” LLC.

KEEP IN MIND:

  1. Any investment purchased with the IRA LLC must list the LLC as the owner or investor, not you as an individual. (“Loving Retired Life, LLC” is the owner.)
  2. All income and/or gains from your IRA LLC investments must go directly back into the IRA LLC checking account and any expenses related to your investments must be paid from the IRA LLC checking account.

NEVER COMBINE YOUR PERSONAL MONEY, IN ANY WAY, WITH THE IRA LLC OR ANY INVESTMENT THE IRA LLC HOLDS, INCLUDING EXPENSES.

Why hasn’t my Financial Advisor / Attorney / CPA heard of a Checkbook IRA?

Historically, brokerage firms have been set up to sell products. Their products! They sell stocks, bonds and mutual funds and they make money doing so. These firms are so large and so numerous that it became the accepted “norm” that retirement accounts could only invest in these types of assets. Financial planners, CPA’s and Attorneys were not taught any other way. The self-directed IRA and the checkbook IRA LLC are set up to allow you to invest in alternative investments that are typically held outside of the stock market.

The IRS only lists 2 restricted investment types for any IRA:

  1. Collectables (Stamps, art, baseball cards, etc.)
  2. Life insurance policies

Is the Self-directed IRA and/or the IRA LLC new?

Not at all. In 1974, the U.S. Congress created the Individual Retirement Agreement as a tax- deferred retirement vehicle. Its purpose was to encourage Americans to save for retirement. The original IRA was intended to be fully self-directed, allowing the taxpayer to make investments directly into real estate, businesses, intellectual property and other types of alternative investments.

Today more and more Americans are demanding more options. This is why “alternative investments” play such a large part in the IRA LLC structure.

How Does an IRA LLC Differ From my Regular IRA?

The IRA LLC has two main benefits:

  1. Control – You are empowered to invest in what you want and when you want, without limitations, and without the hassle of waiting for a custodian to get around to executing your request.
  2. Reduced fees – Because the custodian does not have to execute purchases, sales or pay expenses, etc. they do not charge you transaction fees.

Can I Pay Myself a Salary as Manager of the Checkbook IRA LLC?

ABSOLUTELY NOT! The IRS would consider this a “prohibited transaction” between your IRA and you, a “disqualified person.” Likewise, you cannot “invest sweat equity” into any investment owned by your IRA LLC either. An example of sweat equity would be that you personally complete the demolition on an investment property owned by the IRA LLC. To save money, often times real estate investors do a lot of rehab work themselves. When a property is owned by your IRA LLC, you cannot do any work on your investment property.

Disqualified persons include not only you, but your spouse, your parents and grandparents, your children and grandchildren (and their spouses). Learn more about prohibited transactions.

Disclaimer: If tax, legal, accounting, investment, or other similar expert advice is required, the services of a licensed and competent professional should be employed.