We’ll get to the CheckBook IRA LLC in a minute, but the first thing to address is IRAs. A lot of people still don’t know they can buy non-traditional investments with their IRAs; they don’t know they can buy things like real estate, or make hard-money loans with their retirement money. In reality, there are very few restrictions on IRAs and what they can invest in. Most people don’t know they don’t have to invest their retirement money in the stock market because, unbeknownst to them, their Custodian restricts their investment options.
Custodians can internally restrict what they allow their clients’ IRAs invest in. Which is to say, they can tell you “Even though that investment is perfectly legal, we will not let you do it; we will not facilitate that investment.” They do this for a number of reasons, but the biggest is that large Custodians make a lot of money recommending investments to their clients. They make the most money from investments in the stock market, which is one reason why they only allow their clients to invest in that area.
There’s a better way, though. A way that will allow you to have control over your investments, and open up a wide and rich landscape of investment opportunities.
Self-Directed IRA Custodians
This is where Self-Directed Custodians come in. These Custodians have nothing to sell you, and they don’t generally place any restrictions on your IRA. They will generally facilitate any investment that is legal. An IRA that is held by one of these Custodians is called a Self-Directed IRA. You can see that a “self-directed IRA” is no different than any other IRA, it’s just held by a Custodian that will let you do what you want (within IRA law.)
Technically an IRA is a Trust, and technically the Custodian (self-directed or not) is the Trustee. The trust is not a person, and can’t sign documents on it’s own behalf; that is left to the trustee. So, if an IRA is going to buy or sell, or do anything at all, it is the Trustee that has to sign all the paperwork and facilitate the investment – they’re the ones that actually carry it out. If you wanted to loan $20,000 of your IRA money to a friend, the Custodian would have to review and sign the loan agreement. Once everything is signed and in place, the Custodian who holds the IRA money sends a check or bank wire for $20,000 to your friend to complete the loan.
Limitations of a Self-Directed IRA
A self-directed IRA is an improvement over an IRA with a Custodian that restricts you to the stock market, but there are some downsides to it. First of all, you have a lot of fees. Any time the IRA does anything at all, the Custodian is the one that has to carry out that action, and as a result, they charge you for it. They also charge you for every asset the IRA owns, whether it’s a piece of property, a tax lien, a trust deed, or anything else. These fees can add up over time. The other problem is the fact that you have to run everything through the Custodian. Any document related to the investment you’re doing has to be reviewed and signed by the Custodian, and that can be time-consuming and frustrating. It can actually be a deal-killer as well because the processing times can take long enough that you can’t complete the transaction in time, especially for investments where you need to show up with cash in hand like a tax lien sale or an auction on the courthouse steps. So, even though you can invest in more areas, you’re dependent upon the Custodian to handle the transaction for you.
The CheckBook IRA LLC
Enter the CheckBook IRA LLC structure. This structure gives you checkbook control over your retirement funds. We form an LLC that is purchased entirely by your IRA. We draw up the legal documents to elect you Manager of the LLC with the authority to direct the investments and sign whatever documentation is needed for any particular investment. Once your IRA makes the purchase of the LLC, the Custodian releases the money from your IRA to the LLC bank account that you open as Manager. That bank account can be anywhere you want, and you can open as many accounts as you’d like.
It is the LLC that buys that piece of property, or makes the loan, or invests in a trust deed. Now, instead of waiting on the Custodian to process the transaction, you get to do the transaction yourself as the Manager of the IRA LLC. Whatever is involved in the deal, you get to oversee it and do it yourself. You no longer have to rely on the Custodian – you get to invest in what you know, and you get to do it on your own terms (within IRA law, of course.)
Here are some of the investments you can do with a CheckBook IRA LLC:
All forms of real estate (commercial, residential, bare land), real estate options, tax liens, mortgages and deeds of trust, all types of loans (including person and hard money loans), stocks, bonds, CDs, call and put options, foreign investments, joint ventures, LLPs, Trusts, Partnerships, IPOs, Corporations, bridge financing, and many more.
Invest intelligently. Enjoy the rewards.
The property my self directed IRA owns as a 23% member of an LLC tittled: VEP Properties, LLC.
The second member of the property, VEP Properties LLC is 73%, NJH Investment Trust..a 401k solo trust.
I have a checking account tittled VEP Properties LLC and another checking account titled NJH Investment Trust.
To keep me from having to request vendors and renters from writing me 2 checks for rent/expenses (one to VEP Properties LLC (23% IRA funds)and NJH Investment Trust (77% 401k solo funds) …COULD I another checking account to reflect the 2 members joint LLC investment (members are my 2 types of retirement funds)? I would then transfer the funds/expenses to the appropriate IRA/VEP Properties/checking and the 401ksolo NJH Trust)internally split the expenses and income without asking vendors ad renters to write 2 checks for each transaction. Would this new checking account need to be associated with a new LLC? I do have an LLC set up, but not yet utilized, Hau Properties 2 LLC. I would like to get this done ASAP, before years end. I am very close to receiving my lst deposit check for the VEP Properties… I would like to instruct the tenant to write one check to Hau Properties 2 LLC. Than I would allocate the monies between the 2 investment checking accounts, VEP Properties LLC and NJH Inv Trust. Thank you.
Based on what you’ve represented here, I think it would be best for you to contact the company that set you up. It would be difficult for me to recommend anything, because I have no idea how things have been set up in your case. If you talk to the company/attorney that set all of that up for you, they should be able to answer whether or not you can open a bank account to handle rent payments for both the VEP Properties and NJH Investment Trust.
Sorry I couldn’t be of more help.
I have been reading almost all of your posts regarding the Checkbook IRA, LLC. I have just recently heard of such a thing from my daughter. I am interested in a Roth, I don’t have one. I do have about $4,000 in a former employer 401K that I am thinking about converting to a Roth Checkbook IRA, LLC to start investing in the real estate market. I live in Georgia. Could you please direct me as to what would be the steps, in the correct order needed, to best accomplish this?
Here are some suggested steps:
1. Open a new Traditional IRA with a self-directed IRA Custodian
2. Request and complete rollover paperwork from your 401(k) administrator
3. Your 401(k) administrator will roll the funds to your Traditional IRA
4. Instruct your Custodian to convert the Traditional to a Roth IRA
Sometimes you can roll the 401(k) funds directly into a Roth, and have the 401(k) administrator handle the appropriate reporting for the conversion, although it depends on the administrator.
Keep in mind though, that to do real estate investments, you will probably need more than $4,000. You can certainly partner up with other people using the IRA LLC structure, so you don’t necessarily have to have a large chunk of cash, but keep in mind you will be limited in what you’re able to invest in. In your case, the IRA LLC may not be the best option.
I’ll be happy to talk over your situation and answer any questions you may have. My direct line and email information are right below my ugly mug 🙂 in the upper right hand portion of our blog. Feel free to contact me any time.