How to Use "Checkbook Control" For Even More Control of Your Self-Directed IRA
Estimated reading time: 3 minutes
We’ve all become accustomed to using cards, phones, computers, and even watches to make our everyday purchases and pay our bills. So sometimes we think using a checkbook seems impossibly old-school.
The fact is, "checkbook control" is an efficient, cost-effective way to make purchases on behalf of your Self-Directed IRA.
"Checkbook control" is the term used when a Self-Directed IRA owner has complete signing authority over an account that gives access to his or her retirement funds. Investors obtain checkbook control by establishing a Self-Directed IRA LLC. As a business entity, the LLC can legally open a checking account.
The LLC is funded using retirement saving assets in the IRA, which then funds the LLC’s checking account. Having a checking account provides more investment freedom, allowing you, the IRA holder, to achieve your investing goals and manage your assets with ease.
How is all of this possible? Let's break down the process.
A 3-Step Guide to Gaining Checkbook Control
Step 1: Establishing an LLC or Limited Liability Company
An LLC is a business structure, unique to the United States, that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.
You should talk with a legal or tax expert about how to form an LLC. You also can find information about the legal requirements on the IRS website or visit your local Small Business Administration district office. It's important to find out what your state requires in terms of record-keeping requirements for LLCs. Your state government’s website is a good place to start, or consult with your legal advisor to guide you through the process.
Please note: Entrust does NOT create LLCs.
Step 2: Open a Self-Directed IRA with The Entrust Group
You will either form a Traditional or Roth IRA depending on what type of retirement plans you have at other financial institutions.
You may fund your newly-formed IRA with a direct rollover contribution from a previous employer’s plan such as a 401(k), 403(b) or a Governmental 457(b) plan. You may also transfer assets from an existing IRA at another financial institution of the same type. (This part is especially easy with The Entrust Group. Opening an account takes less than 15 minutes online or over the phone with one of our trained professionals).
The “managing member” of the LLC—typically, you, the investor—is empowered to open a business checking account in the name of the LLC.
Once your transfer or direct rollover has been deposited to your IRA, you can instruct Entrust to fund your newly formed LLC’s checking account. You’ll need to give your bank the LLC’s tax ID number (EIN) and a copy of the Articles of Organization. You will also need to acquire an EIN for your LLC. Depending on the activities of your LLC, you may also need to acquire an EIN for your IRA if it is required to file a tax return.
Step 3: Select your investments
The IRS permits individual retirements accounts in any type of assets, from alternative investments to precious metals to real estate. Having checkbook control allows you to move quickly, a distinct advantage when it comes to investing in real estate and other investments that require you, the investor, to act quickly.
Two Additional Advantages of Checkbook Control
In addition to being able to act quickly, checkbook control makes it easier to stay on top of ongoing expenses.
For example, if you invest in real estate, you can write checks to pay for upkeep or property management fees. Checkbook control can save on administrative costs. If your LLC owns more than one asset, your administrator only charges you for one asset: the LLC itself. Keep in mind however, whatever information comes in and out of the LLC must be reported back to your IRA administrator to ensure proper reporting.
Take Checkbook Control of Your IRA Assets