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.
- 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
- Transfer IRA money to new custodian that allows for a self directed IRA account.
- Accuplan will set up an LLC.
- You direct the custodian to purchase membership units in the LLC.
- The LLC secures debt financing of $625K from a lender.
- The LLC purchases the $1 million property with its own monies plus the lender monies.
- 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.
If you have any more questions about the mechanics of a checkbook IRA feel free to contact us.
Author: Ben Barker, Self Directed IRA Professional