Retirement Guy talks about using a CheckBook IRA LLC to invest in tax liens.  He reviews the reasons why using a self-directed IRA is nearly useless when it comes to tax lien investing, and explains how the process would work with an IRA LLC.

Find out why a CheckBook IRA is the only answer to investing in tax liens with retirement funds.


There are massive profits in tax liens. They can pay 18%, 20%, even in some cases, for example in Illinois, 36% on your money, and it’s protected. It’s secured by property and what the cities or the counties are doing is this money is owed them and they want to get their hands on it. So they go ahead and have these auctions, and you have a chance to show up at the auction and buy these tax liens or tax certificates. Of course, there’s a lot of money to be made in it, and it’s very secure, because of the property. You can go take a look at the property and as a result, a lot of self-directed IRA investors would like to get their hands on those profits.

But unfortunately, a self-directed IRA is just not enough. It’s in this field that the IRA LLC or the Check Book IRA, the advantages of that really, really shine. You see, the problem with buying a tax lien at an auction is that in most cases you have to show up with cash or a cashier’s check and you have to pay for the tax lien right away. The self-directed IRA without the LLC is just not nimble enough. You’re not able to move quickly enough. Let’s run through how you would go about buying a tax lien with this self- directed IRA without the LLC. First of all, you would submit the investment to the custodian. Now, in some cases you would have to Federal Express that. In some cases you could email it, and some custodians would let you fax that to them. It still has to be open during business hours. You have to be able to do that and catch somebody, and hope that they have time that you can get moved to the top of their to-do list to look at your investment and to approve it, and to be able to get the necessary paperwork back to you. So, that is number one.

Now, if they do approve it, and it is during business hours, and you do happen to get an approval back, you have the problem of the money. How do you pay for it? I mean, the custodian has your money, and so, how do they get that there? Most of the time they’re not going to send you a cashier’s check for something that you haven’t bought, something that you may buy, without an escrow agent or anything, where with the Check Book IRA it’s totally different. So there are a lot of steps involved. What if an unexpected opportunity came up at the auction and you had a chance to buy some other property, maybe work another deal out? You just can’t move quick enough with a self- directed custodian. Now, that’s really where the Check Book IRA rides to the rescue. It gives you the total flexibility since you are pre-approved by the custodian within certain guidelines to act, and your money is in a local LLC bank account, where you as the manager have total control. You can walk in and get a cashier’s check, and if you don’t use it, you can take it back and just redeposit it back into the LLC account. Also, when you get to the tax lien auction, you can make those decisions right then and there. If you get a really good deal, maybe you can run back and get another cashier’s check. So, you can move quickly. You have incredible flexibility.

With the Check Book IRA you can move instantly. No need to hope that it is during business hours and that your request can get pushed to the top of someone’s to-do list, and hopefully it’s not a quarter to 5:00 on a Friday afternoon, and they’re wanting to get out and get back with their family or something and you get pushed to Monday. Not just when you buy the lien, but when it comes time to sell the lien that sometimes people will divide up a lien. They can sell part interest on the lien. Like, let’s say you had a lien for $100,000 and you had another opportunity. You can sell someone 50% of that lien. You can sell them the interest or the penalty, or you can discount it. You can make those decisions instantly because you are the manager, and when the money comes in, you just deposit it and turn right around and use it again. So, it gives you a lot of flexibility when it comes time to sell the tax lien. Now, what happens if the tax lien isn’t paid? Well, then you get the property. Again, having an IRA LLC gives you the opportunity and the flexibility to manage that property, to either sell it or joint venture with someone or rent it out. You have that ability to do that, and you’re the one that decides and you’re the one that signs the document.

In short, the Check Book IRA, the IRA LLC, is really the only answer to buying those tax liens.