Why Custodians Don’t Tell You About Checkbook IRAs
by Peter Rizzo
If you’ve ever opened a self-directed IRA through a custodian, you may have noticed something missing from the conversation: any mention of a Checkbook IRA.
It’s not because they’re illegal. They’re perfectly valid under IRS rules when set up correctly. In fact, many investors have been using them for decades to invest directly in real estate, private lending, precious metals, and other alternative assets.
So why the silence? Let’s break it down.
What a Checkbook IRA actually is
A Checkbook IRA is simply a self-directed IRA structured for direct control. You set up a special-purpose entity, either an IRA LLC or an IRA Trust, owned entirely by your IRA. That entity has its own bank account, which you control as the manager (for an LLC) or trustee (for a trust).
From there, you can write checks, send wires, and sign contracts for your IRA’s investments without waiting for custodian approval.
The IRS doesn’t have a problem with this setup, provided you follow the prohibited transaction rules in IRC Section 4975.
Why custodians keep quiet
There are a few reasons custodians don’t go out of their way to promote Checkbook IRAs.
- Less fee revenue
Most custodians charge fees for each transaction or asset they process. With a Checkbook IRA, you make the transactions directly from your LLC or Trust bank account. That means fewer custodian-processed transactions and less fee income for them.
- Less control over your activity
When you have checkbook control, the custodian doesn’t see every deal before it happens. While you’re still responsible for staying compliant, some custodians prefer to act as a gatekeeper to avoid potential compliance issues on their end.
- More complexity for the investor
Even though the structure can be simpler to operate day-to-day, it requires careful setup and a good understanding of IRS rules. Custodians may avoid mentioning it because they’d rather keep clients in the more straightforward custodian-controlled model.
What this means for you
The lack of promotion doesn’t mean it’s off-limits. It just means you need to know the option exists and be proactive about pursuing it.
If you want:
- Faster deal execution
- Lower transaction costs
- The ability to invest in assets that require immediate action
…then a Checkbook IRA could be worth considering.
Just remember:
- All rules about prohibited transactions still apply
- You must keep the entity and bank account separate from your personal finances
- All income and expenses must flow through the IRA-owned entity
We help set up compliant IRA LLC and IRA Trust structures so you can use your retirement money on your terms, while staying within IRS guidelines. If you want more control over your self-directed IRA, now you know there’s a path forward—email [email protected] for more information or call 1-800-482-2760
