Taking Distributions from Your Check Book IRA

By Alisha Bennett

Life Settlements in a Retirement Account? Think Again.

While Check Book IRAs are subject to the normal distribution limits as other IRAs (check with your CPA or accountant to calculate your specific requirements or RMD), there are a few extra steps to making these transactions when using a Check Book IRA.

Distributions can be taken via cash or non-cash (such as a piece of property).  Many clients use the Check Book IRA to finance their retirement home and then distribute it to themselves upon reaching retirement age (see here for an article discussing this unique investment strategy).

Cash: To take cash distributions you must first move funds from the LLC back up to the IRA. Think of the IRA like an umbrella.  In order for your funds to be safely invested under the IRA and receive the tax benefits; it must be under the IRA umbrella.  So, the LLC cannot just cut a check and give a distribution to the IRA owner; the funds must first go back to the IRA and be distributed from there.

To send funds back to the IRA your Custodian will have a form (usually called a Deposit Form or something similar) that you will need to complete and send with funds from the LLC via check.  This form will ensure that your Custodian will properly code the funds as funds from the LLC.

Then all that’s left to do is request a Distribution from the Custodian.  Most Custodians title this form as a Distribution Request Form or something similar.  The Custodian will take care of any necessary reporting to the IRS at year-end.

Non-Cash Distributions: To take non-cash distributions you must complete a specific form (check with your Custodian) that requests that a non-cash asset be distributed.  Although the asset will not physically be returned to the IRA; this form will ensure that the IRA umbrella covers the transaction and any necessary reporting is done to the IRS.  Please be aware that for this type of distribution, taxes aren’t withheld; you’ll need to discuss your tax situation with your CPA.

You can find Custodian Forms here:

IRA Services Trust: https://www.iraservices.com/forms

Contact Us

    Name *

    Email *

    Phone *

    How can we help? *