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What is a Checkbook IRA?

by | Oct 7, 2020 | Checkbook IRA LLC Basics

People who research the self-directed IRA encounter terms like Checkbook IRA, Checkbook Control IRA, IRA LLC and other similar expressions.   These terms are interchangeably used to describe an advanced structure within a self-directed IRA that allows you, the IRA owner, to write checks to purchase investments and to pay for investment expenses, using funds inside your IRA.  And yes, this is all legal and always has been.

To provide the IRA owner with checkbook control, a Limited Liability Company (LLC) is established which will be owned by your IRA (hence the name IRA LLC).  The IRA LLC will be managed by you as the “manager” of the LLC.  A business checking account for the IRA LLC is opened at a bank and is funded by your IRA.

The IRA LLC structure has been blessed by the U.S. Tax Court and has been used to provide checkbook control for IRA owners for over 20 years.  Using a newly formed entity owned by an IRA to make investments was first reviewed and approved by the Tax Court in Swanson v. Commissioner 106 T.C. 76 (1996).

To understand the benefits of a Checkbook IRA, you first need to understand how a self-directed IRA works without checkbook control.  In the more customary structure, you would direct the custodian of your IRA to purchase individual investments on behalf of your IRA.  For each purchase or sale, you will have to fill out a form and pay a separate transaction fee.  Likewise, you will have to fill out and submit a form each time you want to pay an expense related to any investment.  We all know time is money and even the most efficient custodians take time to process these requests.  In addition, custodians generally charge an annual fee PER ASSET.

The Checkbook IRA makes investing quick and easy.  You simply write a check.  You save time and money!

In the past, setting up a Checkbook IRA was expensive and time consuming.  First, you had to find a custodian that was willing to hold an IRA LLC as an investment.  Second, you had to find an attorney that had the experience drafting the very specific IRA LLC operating agreement. You cannot use a typical LLC Operating Agreement. You could expect to pay between $600 and $1500 to an attorney, plus several hundreds of dollars to the state where the LLC was formed.  Third, you had to find a bank that would open a checking account for your IRA LLC.  Finding a bank who understands the structure is often very difficult if not impossible.

Easy IRA LLC makes setting up a Checkbook IRA quick and easy – we do everything for you at a very low price.  You simply complete our short online application and we take it from there.  We establish your IRA at M2 Trust Services, form the LLC on behalf of your IRA, prepare the IRA LLC Operating Agreement and even open a bank account for your IRA LLC at one of our partner banks.  We do it faster and at a lower cost than anybody in the industry!   You can choose between a Traditional IRA, Roth IRA, SEP IRA or SIMPLE IRA.