How to Get Started with a Check Book IRA

By Alisha Bennett

Starting Point

If all of this is new to you, and you’re wondering, “Where do I start to find out about the Check Book IRA?”, then this article should be helpful.

First – Read and understand the definitions of the following:  IRA, Self-Directed IRA, and LLC, and Check Book IRA.  This will help you understand the differences between a normal IRA and a Check Book IRA, how the structure works and how it might benefit you.

  • IRA – a trust account which is treated as a retirement account and is given tax exempt status by the IRS. Custodians will place restrictions on these accounts, and generally require the account invests in a variation of stocks, bonds, and mutual funds.
  • SELF DIRECTED IRA –  an IRA that allows the account owner to make investment decisions and investments on behalf of the retirement plan. This type of account allows investments to be made in non-traditional areas like real estate, gold and silver and private placements. Each investment, however, must be facilitated by the Custodian to the IRA, and transaction and asset fees will be charged to the account.
  • LLC (Limited Liability Company) – a business structure allowed by state statute that is generally considered a disregarded entity by the IRS for the purposes of taxation depending on elections made for the structure.
  • CHECK BOOK IRA – a specialized IRA that uses the structure of a standard self-directed IRA but allows the account to purchase 100% ownership of an LLC that is managed by the IRA owner. The LLC may then make investments without involving the Custodian, thereby reducing transaction and asset fees. The Manager of the LLC has “checkbook control” of the LLC, and may make investments at his or her discretion.

Second – Review the prohibited parties list.  It’s important to make sure you aren’t basing your initial investment ideas on a transaction that might end up being prohibited!  We’ve written a four-part series on prohibited transactions, which you can find here:

Part I

Part II

Part III

Part IV

You might also consider reading the Check Book IRA LLC Road Map. It’s a good place to start.

Finally – CALL US at 1-800-482-2760 if you have additional questions.  We are happy to guide you through the process and more importantly, we do not have any sales department or commissioned staff.  Your call will be answered by an actual owner who is knowledgeable and candid.

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    4 Comments

    1. emerson

      I would like to set up an roth ira llc to use at a casino where I can consistently return 20 t0 30 percent per hour profit would this be fesible ? with me being the manager and making the bets would it be a prohibited transaction and would I be a disqualified person as long as all the profits went back into the ira and I did not take any money for doing the betting

      • Jordan Sheppherd

        Hi Emerson,

        Good question. I don’t think I’ve ever had anyone ask that question in 10+ years. There’s nothing in the code that prohibits an IRA from using funds to bet at a casino, however for you to do it would more than likely be prohibited.

        As the owner of the IRA, and as a disqualified person, the time spent by you in making the bets, would likely be considered prohibited. The Manager of the IRA LLC should serve in an administrative capacity only; anything above that, and you step into a grey area.

        Even if the LLC paid someone else to make the bets, its more than likely the profits would be taxable under the Unrelated Business Income Tax section of the code. It might not be, but my bet is that the income would be taxable; depending on how frequently the bets are made. You might also run into fiduciary responsibility issues as well, considering the risk betting at a casino brings.

        In summation, I would shy away from such an arrangement; especially if it is you that will be doing the betting.

    2. Bruce Olsen

      My wife and I closed our standard IRAs about a moth ago in order to make a RE investment with a colleague. We took a direct distribution of about 150k out, for which we paid taxes of about 36k. We’re 63.

      Could we start a checkbook IRA to “restore” the full value of our IRAs? The concept would be to “borrow” our money back from our colleague for a few days, fud the IRAs, and then pay him back? We have about 30 days left; could this be accomplished in time (assuming it’s lawful)?

      Thanks!

      • Jordan Sheppherd

        Hi Bruce,

        Under the rules for a 60 day indirect rollover, you could roll those funds into new IRAs, so long as its within the 60 day timeline.

        The rules for replacing the funds that were distributed are such that, it doesn’t matter where the funds come from, so long as the same amount is put back in an IRA. The second part of your question though, could be problematic. The property you two bought needs to stay out of your IRA. What you don’t want to do is essentially pull equity from the property, put those funds back into the IRA, and then have the IRA step in and purchase the property. That would definitely be prohibited.

        If you get the same amount of money rolled into a new IRA, you’ll escape taxation on that amount, but you’d need to do something else with those IRA funds; you don’t want to come back in and buy the property. Let me know if you have any other questions.