What is an IRA Checkbook or IRA with Checkbook Control?

There is no such thing as a perfect investment tool; they all have their positive and negative aspects. But there are options to fine-tune your retirement plan to get it to where you need it to be. One such option is the checkbook IRA or IRA with checkbook control.

Opting for a checkbook IRA LLC gives account holders more control over their retirement funds and IRA investments. It can cut down on administration fees associated with the IRA and can result in better execution of transactions.

What is an IRA Checkbook?

An IRA checkbook is a way of gaining more control over the retirement account. An IRA checkbook allows you to write checks backed by the cash in your IRA account. The IRS requires that there be a buffer between the assets held in an IRA account and the account owner. This is why you still need an IRA custodian even if you have an IRA Checkbook.

The way this is achieved is by establishing an (limited liability company) LLC for the IRA. Once this has been accomplished, the IRA will fund or become a member (buy) into the LLC. From that point, most buying, selling, and managing of assets fall within the purview of the IRA Investor.

Keep in mind that this isn’t a personal checkbook. This is for investing, not going to the grocery store. The IRA owner must still follow the prohibited transactions and disqualified person rules. Besides the assets not allowed in an IRA, the checkbook IRA can purchase assets like tax liens, precious metals, and the many alternative assets allowed in self-directed IRAs.

What are the Pros and Cons?

Pros:

Because you are now directing the IRA’s funds, there is no reason for you to pay as many administrative and transaction fees to the IRA custodian. If you own multiple investments within your LLC, some custodians or administrators may only charge you for one asset, and that is the LLC itself. Because you are more in control, your investment purchases and sales will execute much faster. Streamlining the process is an incentive that many people considering an IRA checkbook find very appealing.

Another positive aspect of IRA checkbooks is that once you are in control of the account, you are able to invest in anything allowed by the IRS. There are many fantastic alternative investments that can be purchased in the private market.

Cons:

With the newfound freedom and control that you now have over your IRA retirement plan, comes much more responsibility. But many feel that although there is much more work involved, it is worth it to have more control and flexibility.

The obligation is on the account holder to set up the LLC. Unfortunately, IRAR cannot do this for you. The account holder is responsible for all accounting and if necessary, reporting to the IRS. The purchasing and selling of the various investments held within the IRA also fall on the account holder. 

The LLC associated with the IRA will require a tax I.D., filing system, financial books, bank account, and recordkeeping. Even though there are many upsides to having an IRA checkbook, some people might find that paying the IRA account custodian is worth the money, as it saves a lot of time and headaches.

What Else Should be Considered?

Doing your own due diligence will be important should you decide to move forward with your IRA checkbook. There is no such thing as being too prepared or too knowledgeable about your retirement plan.
There may be unforeseen expenses such as state fees and tax requirements. Formation and recordkeeping requirements of an LLC can vary from state to state. It is best to stay current on anything that could potentially affect your retirement plan.

It is your responsibility to learn what is and is not allowed. Avoiding an prohibited transactions by the IRS is crucial for avoiding penalties and taxes. You could potentially be risking your IRA’s tax-favored status by violating IRS rules and regulations. To keep your investment safe, it pays to do your homework.
Another important factor to consider is time. There isn’t really a point in having more control, reduced administrative costs, and speedier trade executions if you don’t have the time to take advantage of any of those things.

Managing a checkbook IRA takes time and dedication. Not staying on top of taxes, fees, and the like, could potentially result in taxes and penalties from the IRS. It’s important to take the time and think about if an IRA checkbook is something you are able to commit to. If not, a standard self-directed IRA might make more sense.

How Can IRAR Help?

IRAR Trust Company has been helping clients reach their retirement plan goals since 1996. We offer investment education on the rules and regulations governing self-directed retirement accounts.
IRAR's customer service is always here to help. If you are ready to take the next step in planning for your future, we’ll look forward to hearing from you.