What Is A Checkbook IRA

Checkbook IRA

Another way to get even more through your self directed IRA or 401k is to with checkbook contorl. Having checkbook control can also be refered to as a checkbook IRA. Many people have asked me about what a checkbook IRA actually is and how it works. In order to help those who are new to self directed IRAs and what a checkbook IRA is below is an example of how it works and the benefits that come from a checkbook IRA.

Situation

  • Dick & Jane are husband and wife.
  • They each have an IRA:

    • Dick’s account value = $250K (Roth IRA)
    • Jane’s account value = $125K (Traditional IRA)
    • Total IRA = $375K
  • Dick & Jane have found an investment property that is worth $1 million, but if they fix it up, along with appreciation, they estimate that in 3 years it will be worth $2 million.

Objective: To purchase the property with their IRA monies and have the capital gains go back into their IRA accounts.

The Steps to Acquire the Property

  1. Transfer IRA money to new custodian that allows for a self directed IRA account.
  2. Accuplan will set up an LLC.
  3. You direct the custodian to purchase membership units in the LLC.
  4. The LLC secures debt financing of $625K from a lender.
  5. The LLC purchases the $1 million property with its own monies plus the lender monies.
  6. LLC rents the property to generate cash flow to make the required payments.

Liquidation of the Property

  • Property appreciates to $2M over 3 yrs.
  • LLC sells property for $2M.
  • Loan is repaid to lender – $653K.
  • LLC receives $1.347M net from sale.
  • LLC pays taxes on gains related to debt financed portion of the sale.
  • LLC distributes the gain back into the IRAs.

Summary:  See infographic below
ICO Example

If you have any more questions about the mechanics of a checkbook IRA feel free to contact us.

Author: , Self Directed IRA Professional
1.801.683.9291
ben@accuplan.net

Comments are closed.