Frequently Asked Questions
Check Book IRA
What is a Self-Directed IRA Custodian?
A self-directed IRA custodian is approved by the IRS, but you are allowed to direct the investments of the IRA. Many custodians claim that they allow you to self-direct your IRA investments, but then, only let you invest into what they offer. A truly self-directed IRA allows you to make the decisions without restriction.
What is a Check Book IRA?
It is a step further towards putting you in full control of your IRA. You don’t have to go to your custodian to get approval of the investment and get a check written. You, truly, have a self-directed IRA because you have checkbook control as the manager of your IRA owned special LLC!
What can I invest in if I have a Check Book IRA?
Your IRA-LLC can make any investment a regular LLC can invest in as long as you stay away from Insurance contracts and collectibles. Also, you may not have any “self-dealings” without a DOL exemption.
Wouldn’t you love to have the option to invest your IRA in:
Residential Real Estate
Private Notes and Loans
Limited Liability Companies (LLC)
Stocks, Bonds, Mutual Funds
Commercial Real Estate
Trust Deeds / Mortgages
Private Stock Offerings
Many other investments
What types of retirement accounts can be moved into Check Book IRA accounts?
Traditional IRAs Sep IRAs
Roth IRAs 401(k)s
Qualified Annuities Profit Sharing Plans
Government Eligible Deferred Compensation Plans
Is this new?
No. These investments have been allowed by the IRS for 30 years!
Why haven’t I heard of this before?
Who would tell you? Your stock broker? They will only let you invest your IRA in investments that their firm offers. At a bank, you may be limited to CDs, while at a brokerage firm you will be limited to stocks, bonds and mutual funds. As a consequence, and unfortunately for many investors, it has been a well-kept secret that they have other options for their IRAs. The traditional investment community has had control of over 97% percent of retirement accounts, and they have been making a great living off your accounts. Why would they want to let you know of alternatives that they wouldn’t benefit from?
As investors have become more disillusioned and frustrated with traditional investment choices, they have begun looking for alternatives. After the steep stock market decline, corporate scandals and corruption (e.g. Enron, ImClone, Worldcom) and many investors seeing their retirement accounts cut in half, they are ready to take control of their own investments. They often want more tangible investments such as Real Estate.
However, when they ask their current custodians / brokers, they are typically told that such investments are illegal, too complicated or that it can’t be done. But those are ignorant and self-serving responses. Although those custodians/brokers may not allow it, it can be done. It is just likely you can’t do it through your current custodian. They would financially suffer if you make a move so they aren’t going to tell you about it.
How are custodians different from each other?
The government allows certain institutions to handle the accounting and reporting of IRAs. They must ALL follow the same rules and guidelines. Under the law, all custodians can allow you to invest your IRA in the same types of investment (stocks, bonds, real estate, notes, tax liens, etc.). However, the majority of custodians have made the decision to restrict the types of investments you can make. This is not based upon law, but it is based upon what the custodian wants to offer. However, there are a handful of custodians, called “Self-Directing” who allow non-traditional investments.
Do I get complete control?
Having a self-directed IRA custodian is one step toward obtaining complete control. When an account is established with a self-directed custodian, you are still required to get permission from the custodian before making each investment. This is time consuming, cumbersome and more expensive than it needs to be. To obtain a truly self-directed retirement account, you need the CHECK BOOK IRA, LLC. This is the structure that gives you checkbook control.
With the CHECK BOOK IRA, LLC, your IRA makes one investment, and it owns the LLC. After that, it is the LLC that makes all the investments with the tax liability flowing through to the owners – the IRA. However, the profits stay in the LLC where the full un-taxed amount is ready for reinvesting. Now, you are able to make investments the minute you decide to without getting permission from anyone. You have the checkbook. You are in control of your retirement money.
How do I know that this is legal?
This is a question that is frequently asked by investors who have never heard that they could invest in anything other than stocks and bonds. However, we’ve shown you that Real Estate has been an allowed investment since the day IRAs were created almost thirty years ago.
Find out for yourself by going to the Internal Revenue Service’s website. Request Publication 590. On pages 40-41, you will see what investments are not allowed (see below – collectibles, life insurance, s-corporation stock, etc.). Real Estate is NOT mentioned as a disallowed investment, just like stocks, bonds and mutual funds are not mentioned as a disallowed investment. Also, you can look up “Swanson vs. The Commissioner”.
Can I use funds from a 401(k), IRA, Sep IRA, Roth IRA, or 403b with Check book control?
Yes. You can self-direct all of these types of accounts. They can all be invested into the CHECK BOOK IRA, LLC or a Check Book Solo 401(k) for a truly self-directed investing.
Can my IRA purchase Real Estate I already own?
No. This would be considered a prohibited transaction, or “self dealing” (see IRC 4975). You many not purchase property which is currently owned by you, or any other disqualified person. You would need to find another piece of Real Estate that you don’t already own, to purchase, unless you filed for an exemption.
If I buy an income producing rental property, who gets the rental income?
The income goes back into the CHECK BOOK IRA, LLC, and you retain the tax-deferred or tax-free status (in the case of the Roth IRA) of the investment.
Can I use leverage in buying real estate?
Yes. You can use your IRA money as the down payment and then have your CHECK BOOK IRA, LLC get a loan for the balance. However, you will not be able to personally guarantee the loan. It must be a non-recourse type of loan, which means that if your IRA fails to make payments, the only recourse the lender has is against the property itself. Further, there will be tax ramifications in doing so; UDFI (unrelated-debt-financed income) tax applies when a loan is obtained. That means, what ever percentage was borrowed, then that same percentage of any profit is taxed on your IRA. You would want to confer with your tax professional about what forms would be necessary.
My IRA is small. Can I personally co-invest with my IRA?
It is not a prohibited transaction for you to co-invest with your IRA. However, there are certain formalities that need to be adhered to, and there are some situations where it isn’t advised.
Can my IRA co-invest with friends?
Yes. IRAs may purchase an undivided (and proportionate) interest in a Real Estate.
Can I be the property manager of the Real Estate?
That depends. With just a self-directed IRA, the answer is NO. In fact, you can’t even change a light bulb on the property. But with the CHECK BOOK IRA, LLC, you have the ability to manage the property, collect the rent and pay the bills. Unlike just having a self-directed IRA which put restrictions on what you can do, the CHECK BOOK IRA, LLC structure allows you to advertise for renters, collect and deposit the rent checks, pay the real estate bills, etc. This saves your IRA a lot of money, and helps provide a more comfortable and prosperous retirement for you.
May I use my IRA funds to make improvements or renovations?
Yes. In fact, you must use IRA funds to make the improvements and pay all expenses associated with the property. All expenses of the property are paid with IRA funds, and all profits made on the property are returned to the IRA. This makes sense because it is an investment of the IRA.
Can I buy vacation property?
Yes. Doing so would not constitute a prohibited transaction. However, you cannot have a vacation there.
Can I buy my dream retirement home with my IRA, and then live in it when I reach the age of retirement?
Yes. Your IRA would be the original owner. You would use your IRA money to make the purchase and maintain the property. Any rents generated would be returned to the IRA. However, upon reaching retirement age, the property could be distributed out to you. Of course, you would have to pay taxes at that point, but without penalty.
What are the advantages of using a CHECK BOOK IRA, LLC when investing my IRA in Real Estate?
You can only receive true checkbook control with the CHECK BOOK IRA, LLC. With a self-directed custodian, you get more control than you get with a traditional custodian, but you still have to get permission from the custodian for every little thing you do. This is problematic, unnecessary and annoying. Further, with any time sensitive investment, it puts you at a huge disadvantage. And what Real Estate deal that aren’t time sensitive? If you don’t move quickly, you will miss out on the best deals.
Think of tax liens, tax deeds and foreclosures sold on the courthouse steps; you need to have checkbook control or you miss out. With the CHECK BOOK IRA, LLC, you have the checkbook, the authority to write the checks and can make an investment without time delays. This ensures that your IRA is able to make the best investments at the best prices.
With the CHECK BOOK IRA, LLC, your IRA will be subject to fewer and lower fees from the custodian. Thus, there is more money for your retirement, which is the whole goal of an IRA.
Can my CHECK BOOK IRA, LLC make loans to other individuals who want to buy Real Estate?
Absolutely! As long as they aren’t “disqualified persons”. This is done frequently, and is a great investment for your IRA because the property is the collateral.
Can I make a loan to my brother, aunt, cousin or step-child so that they can use the money as a down payment on a home?
Yes. According to IRC 4975, siblings, aunts, uncles, cousin and “step-relations” are not included in the definition of disqualified persons. Thus, any dealings between your IRA and these persons would not be a prohibited transaction. To deal with your children, grandchildren, spouse or parents, you would need an exemption.
Can my CHECK BOOK IRA, LLC make loans to a friend?
Absolutely! Friends are not disqualified persons under the Code; and therefore, your IRA can make a loan to them for any purpose ,whatsoever (boat, airplane, hot tub, home improvements, etc.). Of course, you want to make sure that there are proper formalities and reasonable terms to the loan. It is your retirement.
Can my CHECK BOOK IRA, LLC make loans to a Real Estate developer?
Yes. Your IRA can loan money to a Real Estate developer to finance the purchase or the development of a property. Developers often look for private financing, so it is a great way to get your IRA involved in Real Estate development. And because developers often pay an above-market interest rate, the loan can be a great investment for your IRA.
Can my CHECK BOOK IRA, LLC make loans to businesses or companies?
Sure. Your IRA can make a loan to any type of business. However, be aware that there are some restrictions on loaning money to any business that you or any other disqualified person has an ownership interest in. If a disqualified person or persons have part-ownership, it must be less than a total of 50%.
Are the gains that my CHECK BOOK IRA, LLC make taxable?
Not in most cases. If an IRA buys a piece of property and then sells it at a profit, the gains stay within the IRA. If you have a traditional IRA, the gains are tax-deferred. If you have a Roth IRA, the gains are tax free. Note that you alter that result if you use leverage through borrowing. If you borrow 1/3 of the money, then 1/3 of the profits are taxed.
Can I invest outside of my state or outside the country?
Yes! Your IRA can invest outside of the U.S.A. There are many great investment opportunities in other countries. Remember, it’s the LLC doing the investment. So anything an LLC can invest in, so can your IRA, as long as it’s not a prohibited transaction or one with disqualified persons or companies.
What are Prohibited Transactions?
Understanding what constitutes a prohibited transaction is very important when it comes to making investments within your IRA. The IRS defines a prohibited transaction as follows:
“Generally, a prohibited transaction is any improper use of your IRA account or annuity by you, your beneficiary or any disqualified person. Disqualified persons include your fiduciary and members or your family (spouse, ancestor, linear descendant, and any spouse of linear descendant).” – IRS Publication 590
IRC 4975 is the section that lays out the rules on prohibited transactions. Prohibited transactions generally involve one of the following:
(1) doing business with a disqualified person;
(2) benefiting someone other than the IRA;
(3) loaning money to a disqualified person; or
(4) investing in a prohibited investment.
In plain English, prohibited transactions are those transactions that violate the basic intent of the IRA. Your IRA must benefit, rather than benefiting you, personally. In other words, there can be no “self-dealing” transactions. However, there are many ways in which you can invest your IRA and not be in violation of the prohibited transaction law. And when your IRA benefits, you benefit because it is for your retirement.
Are there investments that are prohibited?
Yes, but you probably won’t be investing in them anyway. The Internal Revenue Code does not specifically authorize investments within an IRA; rather, the code outlines what types of investments are not allowed. Prohibited Investments include:
- Metals (there are exceptions)
- Coins (they are allowed but with restrictions)
- Alcoholic Beverages
- Life Insurance Contracts
- Stock in a S-Corporation
- Certain other tangible personal properties
Who is a disqualified person?
- The IRA holder and his, or her spouse;
- the IRA holder’s ancestors, lineal descendants and their spouses;
- investment advisors and managers of any corporation, partnership, trust or estate in which a disqualified person has 50% or more interest; and
- anyone providing services to the IRA, such as a trustee or custodian.
What are some types and examples of Prohibited Transactions and / or Self-Dealing Transactions?
- Self-dealing with a family member (home-purchase of your IRA from your father).
- Self-dealing with yourself (home-purchase of your IRA for your own self).
- Personal use of IRA property (buying a rental vacation home with IRA money, and then staying on it when on vacation).
- Receiving personal benefit from your IRA (paying yourself for work that you do on the property such
as repairing the roof).
Can I buy a business with my CHECK BOOK IRA, LLC?
Yes. You can buy a business with your IRA money via the CHECK BOOK IRA, LLC. Please contact us for details.
Can I invest in an existing business?
Yes. This can be done as purchase of a stock, or as loan to a business.
What about S-Corporations?
S-Corporations do not allow IRAs as investors; they only allow individuals. Therefore, it isn’t so much that IRAs are prohibited from investing in S-Corporations, rather that S-Corporations don’t permit having an IRA as a shareholder. It is likely, that the investment of the IRA would revoke the sub-S status of the corporation.
Can I buy Stocks, CDs, Bonds, Options or do FOREX trading, etc.?
Yes. You can invest in any IRS-permitted investment. That includes publicly traded stocks, CDs, mutual funds, annuities, bonds, stock options, futures, etc. In fact, if you are an active swing trader or day trader, you will be able to trade your IRA in a manner that your current broker does not allow you to trade using the CHECK BOOK IRA, LLC. For example, you probably have asked your broker if you can buy or sell “Options” (Calls and Puts), or maybe you would like to write “Covered Calls” or do “Spreads”, and have been told “NO!” The CHECK BOOK IRA, LLC allows you to trade your way. You can also participate in IPOs. Remember it’s your LLC that opens the brokerage account. You can have as many as you wish.
I have a 401(k) with an old employer. Can I move it into the CHECK BOOK IRA, LLC?
Yes. You can move these 401(k) funds into the CHECK BOOK IRA, LLC. You can start controlling this money yourself, rather than letting your old employer control your future. We will help you with this process.
I have a 401(k) with my current employer. Can I move it into the CHECK BOOK IRA, LLC?
The 401(k) plan documents will specify what you can do. But most of the time, you cannot move money from a 401(k) plan if you are currently working for the company.
I have several IRAs and old 401(k)s. Can I combine them?
Yes. They can all be combined and invested into your CHECK BOOK IRA, LLC so that your buying power is maximized. Generally, the only restriction is that on 401(k)s, you must no longer work for the employer. You can usually combine multiple retirement accounts into one account. Or in the event that they can’t be combined, such as the case of a traditional IRA and a Roth IRA, they can still be invested into the same CHECK BOOK IRA, LLC.
I want a Roth IRA LLC, will I have to start over with my Roth?
No, your new Roth IRA will have the same “birthday” as the old one. You do not have to start the five year count down again.
What’s this all going to cost me?
A better question is, “What’s it going to save me?”. Recently, we helped a client set up a real estate closing so that the $10,000-profit went into a Roth Check Book IRA. We had to hustle to finish the paperwork in time, but by doing so, he saved 35% in taxes and had the entire $10,000 to reinvest as soon as the check from the Title Company was in the account. A savings of $3,500; and he has control the rest of his life!
Call us today for pricing and start saving today.
Steve at Check Book IRA, LLC
Call (800) 482-2760
Or email me at [email protected]
The Solo 401(k) Plan Solution
HOW do I qualify for a Solo 401(k)?
To be eligible for the Solo 401(k) plan there are only two requirements set forth by Congress that must be met:
1. There must be some sort of self-employment activity.
2. You may not have full time employees other than your spouse.
What qualifies as self-employment activity?
It generally includes the ownership and operation of a sole proprietorship, C Corporation, S corporation, limited liability, and limited partnership where the business in tends to produce a profit to make significant contributions to the plan.
Here’s a link to an article on how to generate Self Employment Income (1099) activity.
Do I need to make a profit?
There really are no hard and fast requirements for how soon profits and contributions must occur. In fact there are no set requirements for how much profit the business must generate. It’s generally accepted that if you are conducting business in a legitimate manner with the intention of generating profits that will suffice the ERISA requirements. In fact your activity could be part
time. In fact you can even participate in your current employer’s plan along with your own solo 401(k) plan.
Full-time employees are not allowed
The Solo 401(k) unlike the regular 401(k) plan was designed to be implemented only by self-employed individuals or small business owners with no employees that are full-time. There is an exception made for your spouse if they are a full-time employee. The goal of Congress was to set up a Solo 401(k) that was easier to manage and less expensive than the regular plan and is targeted for owner employees. Part time employees and independent contractors are not considered full-time employees.
Sock away more money.
A participant of a Solo 401(k) plan can contribute up to $51,000 per year and if they are over 50 years old they can contribute an additional $5500 a year that’s called the catch up provision.
Borrow from your retirement account
A unique benefit of the Solo 401(k) allows you to borrow up to $50,000 of your account value or 50% whichever is less. This loan can be used for anything including personal or business needs. Build alone needs to be paid back you may have as much as five years to repay the loan. You will need to make payments at least quarterly; and though you can set the interest rate as low as you’d like, you may only go as low as the prime interest rate.
You have the checkbook
Since you are not required to hire a trust company or a bank to serve as your custodian/trustee this not only saves you money but allows you the flexibility to instantly make investment decisions and act upon those decisions. Basically you are in charge of the investment decisions of this plan and once you make those decisions and sign the proper documents you simply write a check. It doesn’t get much simpler.
Must I contribute each year?
Though you always have the ability to contribute as much as you legally are able you have the option of reducing your annual contributions or if circumstances dictate completely eliminating them. Again you have tremendous freedom and flexibility.
Is there a Roth 401(k)?
No, however there is a Roth component to the Solo 401(k). Even if you have a high income you are allowed to contribute to your solo (k) and designated as a Roth contribution where it is held in a sub-account and can be contributed without any income strictures
Reporting requirements are minimal
Until your solo 401(k) plan reaches a value in excess of $250,000 there is generally no annual filing requirement. Once you reach the $250,000 threshold there is a short form called the 55 – easy that must be filed with the IRS. This is a very easy form to fill out.
Finally, you can use leverage with your IRA.
One of the biggest problems using an IRA to purchase real estate is that if one uses leverage or mortgage financing it can create a sort of business taxable income. It is a headache and can be costly however the Solo 401(k) plan is almost always exempt from this Business tax.
New Mexico LLC’s
How does the New Mexico LLC compare to Nevada Corporations or Delaware Companies?
The New Mexico LLC offers all the benefits of Nevada and Delaware entities at a fraction of the cost. In fact, no other state offers the degree of privacy and low cost of New Mexico. A few of these benefits are anonymity, legal protection, and flexibility. Additionally, LLCs are much easier and cheaper to maintain than corporations while offering every bit of the liability protection. Both Nevada and Delaware require Annual Fees and Reports; whereas, New Mexico does not. Nevada LLC’s require personal information, and Nevada Corporations involve hiring nominee officers and directors. New Mexico does not have these restrictions.
Do I need a Tax ID Number for my company?
No. We will secure it as part of our service.
Does my business or personal residence have to be in New Mexico?
Can I use a New Mexico LLC to avoid taxes?
The New Mexico LLC can be operated so that it has no tax liability. Members of the LLC are responsible for reporting their share of profits on their personal tax return (if applicable) and paying the taxes that they are liable for. A limited liability company is a powerful tool that can help you minimize taxes. Simply having your own business can be one of the most powerful tax shelters available since it allows you to take numerous tax deductions that are, otherwise, not available at the personal level. Consult your tax advisor if you need advice concerning your personal tax situation.
Do I need to file Annual Reports or pay Annual Fees to the State of New Mexico for my LLC?
No. The only annual fee is to the Registered Agent in the amount of $125 per year.
Do I need to file personal or business tax returns to the State of New Mexico?
No. Since the LLC is owned by the IRA, there are no returns required on the state level.
How many LLCs can I own?
There is no limit.
What is an "Operating Agreement"?
The Operating Agreement is a private agreement between the owner(s) of the LLC. It specifies how the LLC is to be operated. We have developed some of the most powerful Operating Agreements that will come with your IRA LLC order. This document is only disclosed to those who you wish to disclose it to.
Are you sure there is no public record of who owns the LLC?
Absolutely! Not even the state knows who owns the LLC, unless you choose to disclose that to them.
What else can you tell me about the New Mexico LLC?
The New Mexico LLC is a low-profile, extremely affordable (some asset-protection entities are priced in the tens of thousands which
is totally unnecessary), and is a “top-shelf” asset-protection tool. It is the entity of choice for those seeking ultimate asset protection
If I file for an LLC in New Mexico, do I also have to file or register it in my home state as well?
It depends on how you will be using the LLC. The rules vary for different types of businesses. But, if your LLC is doing limited business, a holding company, or if it will be holding a title to a real estate, you will likely, not need to register it in any other state. Most states, if not all, only require you to register as a “foreign LLC ” if you meet their definition of “transacting business within the state”. Most of the time it is relatively easy to structure the LLC so that it does not meet the definition of “transacting business”.
If you will be opening a “bricks and mortar” business with a storefront, you will most likely need to register your LLC with the
state that it will physically be located in.
Where do I go to get copies of my real estate deeds?
You should have copies of your deeds with the paperwork you received from the title/escrow company when you closed on the purchase of a property. Your mortgage/trust deed documents and Title Insurance Policy should also list your legal description and names as they appear on the title.
Can the Registered Agent receive mail for me?
No. The Registered Agent does not receive or forward mail at this time, although they may offer this service at some time in the
Tell me again, why should I get a New Mexico LLC?
The New Mexico LLC is a powerful tool that can help you keep your assets from those who seek to take your property without your voluntary consent. It is our pleasure to help you in this regard.