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The Checkbook Control Self Directed IRA LLC. What Is It, And Who Should Have One?

August 16, 2021

In this video, we discuss the checkbook control IRA, LLC. What is it? Who should have one? And, what are the problems associated with it, as well as what solutions it provides.

What is a checkbook control IRA, LLC.

If you go online and search this term, you’re going to get a lot of different opinions and a lot of different explanations as to what this is. So, let’s talk about it real briefly.

First, when somebody is mentioning checkbook control IRA, LLC, they’re really talking about having an IRA – most likely a self-directed IRA – where the self-directed IRA is going to be a shareholder of an LLC.  A lot of times it’s a single member, LLC.

This means that the IRA owns one hundred percent of the LLC, but the managing member of that LLC is the IRA owner themselves.

What this allows them to do is set up a bank account, linked to that LLC, where the IRA owner has access to the funds.

This gives them checkbook control, and the ability to write checks for their IRAs investments.

Now, there are a lot of people that set these up,

However, we always caution people before doing that.

You must understand the risks and the problems that these might present.

A history lesson about the checkbook control, IRA, LLC

If you look back, there’s a case in 1996, named Swanson vs commissioner.

If you read this case, you’ll see that a gentleman by the name of Swanson who had set up two checkbook control, IRA LLCs. He was the managing member of the LLCs and his IRAs, were the sole shareholders. In this structure, he proceeded to do prohibited transactions with those LLCs.  

As a result, what he did with these checkbook control IRA LLCs got him in court with the IRS.

Now to make a long story short, he ended up winning the case against the IRS, but not really off merit.

It’s clear by the court case that Swanson clearly did things that were prohibited based on the IRA rules, and he should have lost the case.

He should have had his IRAs distributed to him with penalties and taxes along with it. But, he ended up winning the case because the IRS’s attorneys went after the wrong thing.

Prohibited transactions don’t go away

One of the things you have to be really cautious of is if you set up a structure like this and you need to be the managing member of the LLC owned by your IRA, this doesn’t make prohibited transactions go away.  You need to understand what you can and what you can’t pay for.

For instance, you can’t pay yourself some sort of salary or take some sort of monetary benefit for managing the LLC.

You can’t co-mingle funds, meaning you can’t have your IRA own the LLC., and then you inject personal funds into it.

You also can’t instruct that LLC to make investments with you personally. That’s called self-dealing.

So, you have to be very cautious and very aware of the IRA rules when you set this up.

But, it does provide some solutions for certain investors because it gets them access to the money or the checkbook.

And that’s the main reason people set these up.

A lot of moving parts

Now, for instance, if you’re going to buy an investment with your self-directed IRA and that investment is, has a lot of moving parts, right?

Maybe you’re doing some rehabs and you’ve got to cut a lot of checks to contractors and get checks to Home Depot and things like that.

Well, it might make sense to have a checkbook control IRA, LLC.

So you could write the checks and you can do all those little items without a lot of wasted time and communication with a custodian.

It also helps on certain investment strategies.

For instance, if you’re buying property at auction – live or online – a lot of times the auctioneers or the trustees will require that you make payment on your winning bids at the time that you win the bid. This could be same day.

Now that doesn’t give Nuview an opportunity to process anything because it’s happened so fast. So, if you need access to the funds, a checkbook control IRA, LLC could help you in that situation.

But again, we remind you, make sure you understand the IRA rules. Once you invest your IRA into an LLC that you’re managing, there’s no oversight.  We don’t see the investments happening with in the LLC. So, does it work for a lot of investors? Yes.

And a lot of people have a misconception that they need an LLC in order to self-direct their IRA.

This is a really big misconception. And we recommend you be cautious of companies that only allow you to do that structure, or companies that only have that structure or that product.

There’s no one size fits all when it comes to self-directing your account.

A Recap of the checkbook control IRA, LLC

When it comes to a checkbook control IRA, LLC, let’s recap.

  • Can it be done? Yes.
  • Are there cautions? Yes. Make sure you understand the IRA rules first.
  • Does it give you checkbook access? Yes.  But make sure you understand what can and can’t be paid for out of this structure.
  • Can you self-deal? No. You still can’t do prohibited transactions just because you have the checkbook.

And remember, there’s no oversight with these types of structures.  Just because someone set one up, it doesn’t mean that you should set one up.

Consult with one of our IRA specialists. Have them ask you some simple questions and find out if it’s right for you.

Frankly, there might be better solutions than a checkbook control IRA, LLC, that you haven’t thought of yet. Ones that could be easier and cheaper.

The bottom lines is, make sure you understand the options first before setting one up

For more information, we go live every Wednesday with our Wednesday workshop.

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