Most IRA Custodians place many restrictions and require their clients to invest in company-run funds and securities and not so much in non-traditional investments where they have less control. When a traditional custodian does allow non-traditional investing, they usually attach so many fees that such actions are therefore deterred.
Restrictive plan documents and fees are the major reasons for the stringent air that surrounds IRAs, not federal tax law. With checkbook control of a self-directed IRA, also known as a checkbook IRA, an investor can avoid most of the fees charged by traditional custodians and most of the investment restrictions. Checkbook control simply means that the investor can write checks for investments and investment expenses directly from his or her IRA without an intermediary.
Checkbook control is crucial for investing in real estate. Real estate transactions (residential and commercial) usually involve all sorts of extra costs that must be paid directly from the IRA. If you generate custodian fees every time you pay one of these costs, your profits can take a serious beating. When you start looking for self-directed IRA providers, pay close attention to their fee structures.
Time, Real Estate, and Checkbook Control
Real estate is all about location, location, location, but real estate investing is also about timing, timing, timing. Probate properties and tax lien properties (where some of the greatest profits lie) can go quickly and you may not have time to clear the investment with your custodian. With checkbook control, you can act immediately and hopefully before a bidding war starts.
How does it work:
- Setup American Estate and Trust as the custodian who handles self directed IRAs (Accuplan assists with this process).
- Create the LLC (Accuplan creates the LLC along with a very unique and special operating agreement). You can operate as the Manager.
- Transfer IRA to American Estate and Trust (custodian). Accuplan helps you do this.
- Setup checking account at a local bank.
- Direct custodian to transfer money to LLC in the form of purchasing membership units in the LLC.
- Direct investments from the LLC.
If you have any more questions about a checkbook IRA feel free to call, email, or comment below.
Author: Ben Barker, Self Directed IRA Professional