Using a Checkbook IRA with an LLC or Trust to Invest in Private Loans

Private loans can offer high yields and diversification, especially when made through a Checkbook IRA. With the right structure, typically an LLC or Trust, you get more control, faster deal execution, and access to nontraditional opportunities.

Here’s a breakdown of how to do it right.

What’s a Checkbook IRA?

A Checkbook IRA is a self-directed IRA that lets you invest directly, without waiting on custodian approvals. This is usually set up by forming an LLC (or sometimes a Trust) that your IRA owns. You (or someone you designate) manage that entity, using a dedicated bank account to make investments—including private loans.

Common investments include:

• Real estate
• Crypto
• Precious metals
• Private loans

Why Use It for Private Lending?

Private loans can:

• Offer higher interest than traditional investments
• Be secured with collateral
• Be tailored to your risk/return preferences
• Provide flexible durations

Using a Checkbook IRA lets you skip custodian delays and fees by managing the loans yourself. This puts you in the driver’s seat and can unlock opportunities that aren’t available through public markets.

How the Setup Works

1. Open a Self-Directed IRA
   Choose a custodian that supports checkbook control and alternative assets.
2. Form an LLC or Trust
   Create a single-member LLC (owned by the IRA) or an IRA Trust. You’re the manager or trustee.
3. Fund the Entity
   Your IRA sends money to the LLC/Trust’s bank account. Those funds are now ready for deals.
4. Make the Loan
   Issue loans to third parties (not disqualified persons). Negotiate terms like interest rate, term, and collateral. All returns flow back to the IRA.

Avoiding IRS Trouble

IRC Section 4975 prohibits lending to “disqualified persons,” including:

• You, your spouse, parents, or kids
• Entities you own 50%+ of
• Any fiduciary to the plan

Examples of what not to do:

• Loan to your child’s startup
• Loan to your own business
• Loan secured by your personal assets

Violations can trigger full IRA disqualification.

Due Diligence and Recordkeeping

Just because it’s private doesn’t mean it’s safe. Run your own underwriting process:

• Review borrower credit
• Verify collateral (get appraisals)
• Document everything: promissory notes, payment schedules, mortgage docs
• Track payments and communications

You’ll likely need to report the fair market value (FMV) of your IRA each year, including the loans.

Trust vs. LLC

Some use an IRA Business Trust instead of an LLC. Differences:

• No state registration required
• Lower cost and faster setup
• May have more limited banking and custodian support

Why This Strategy Works

Using a Checkbook IRA to invest in private loans can boost returns and give you more control. You avoid custodian bottlenecks, reduce transaction costs, and get the flexibility to structure deals your way. For experienced investors who know how to underwrite, this can be a powerful and tax-advantaged strategy.

Looking to set up a Checkbook IRA LLC or Trust? We can help you structure it the right way and stay compliant from day one.