Check Book IRA / 401(k) LLCs
Watch the videos below for conversations with a custodian and review the list of custodians to determine which one has the services / support that you currently need.
Recent indications from the IRS show that this structure is falling out of favor.
There are many “red flags” and you would be wise to consult with your Custodian regarding the assignment of Manager roles and / or co-investing personal funds (Partnering).
A true self-directed IRA / 401(k) allows you to invest in anything that is not prohibited specifically by the IRS rules. For example, you can invest in real estate but not collectibles like old coins. You also must ensure that none of the investments you make includes a disqualified party, such as your parents, spouse or children or your custodian. Apart from that, you are pretty free to invest as you like. You are responsible for ensuring that the investment is a good one – the Custodian will not do due diligence to ensure the investment will pay out as promised – and on your instructions, the Custodian will send the funds to the required place.
Roll Over as Business Startups (ROBS) appear to be a creative way to bypass some IRS rules regarding prohibited transactions. Read more about some court rulings here. And an IRS Memorandum concerning guidelines for ROBS
Depending on your Custodian’s policies, there may be transaction fees billed to your IRA account. There is also a time delay from the point at which you decide to make the investment and when the investment is funded.
A Checkbook IRA / 401(k) LLC can be attached to your self-directed IRA / 401(k) accounts to give you the following advantages:
- Money from all your IRAs or 401(k)s could be used to fund the LLC, giving you a bigger pool of money available for each investment. Investments would be owned by the members of the LLC – the IRA / 401(k) accounts – in proportion to how the LLC was funded.
- The transaction fees for your Custodian should be lower. Since the transactions would be going through the LLC, you should only have a holding fee for your accounts and few other charges from the Custodian.
- You could write checks for investments immediately. This is particularly important when you wish to purchase land with IRA funds and a deposit is required. Writing the deposit check from your own funds and reimbursing yourself from your IRA is not permitted.
Whether or not to set up a Checkbook IRA / 401(k) LLC is a function of how you plan to invest. If you will need to pay bills or fees several times a month, the Checkbook LLC could save you money. The entire amount of the set up cost must be paid by the IRA, not by you personally, and you must give an annual accounting of the value of the assets held in the LLC to your Custodian.
Watch our videos below to listen to our interviews with Theresa Fette, CEO of Provident Trust Group, LLC. If you’d like to speak with us about this strategy, please [click here] to contact us.
In addition to Provident Trust Group, LLC, some custodians that we have worked with who support the CheckBook IRA / 401(k) LLC strategy are
- Horizon Trust 888-205-6036, option 1
- Midland IRA | Kelsey Dineen, CISP 239-333-1032 x 114 or 239-333-4920 [ firstname.lastname@example.org ].
- Midland IRA | Matt Calhoun 239-333-4461 [ email@example.com ].
- Mid South Retirement Services, LLC | Custodian Darlene Lawson (318) 448-3036 x 205 [ dlawson@MidSouthRS.com ]
Provident Trust Group, LLC | Custodian Lindsay Mersino Account Manager 702-522-2155 [ firstname.lastname@example.org ]
- Specialized Trust Company | Michael Liello 505-514-0601 [ email@example.com ]
Among the custodians who don’t provide support currently for IRA LLCs are Fidelity, Schwab, A.G. Edwards, Equity Trust. Ask your custodian if they will allow your IRA to establish an LLC for self-directed investments. Fees vary widely, so be sure that you understand the services provided.
Your custodian is responsible for several steps in the process of setting up an IRA LLC. You should verify that the custodian is comfortable with ‘direction to pay’ forms, signing operating agreements as the IRA representative, annual meetings and other company formalities.
One or more qualified PLANS can be owners of an IRA / 401(k) LLC. This allows you to join a Roth and Traditional IRA in one LLC or allows you and your spouse to fund a single LLC.
We sometimes receive email from people who have been misled through no fault of their own. Usually, an “expert” provides the mis-information and you are caught in the middle. Here is an example. “Comments from my broker…”what this link does not tell you about is the IRS penalties and IRS taxes that occur on every single withdrawal from IRA. Check writing from IRA will cost the check writer about 30%…of every withdrawal: Example: write a check for $1000 withdrawal pay the IRS penalty $300…you lose $300 forever…””
If you were to withdraw funds from your IRA / 401(k), then you would have to pay taxes and possibly penalties as well. For this reason, we do not recommend withdrawing funds from your IRA / 401(k).
Having your IRA / 401(k) establish its own LLC and transferring IRA / 401(k) funds to the LLC bank account does NOT expose the IRA / 401(k) (or you) to taxes or penalties. The money is still under the IRA umbrella and when the PLAN’s LLC makes an investment, the result is EXACTLY the same as if a broker used some IRA / 401(k) funds to invest in stocks, bonds or mutual funds.
The only difference is that your PLAN can now also invest in OTHER areas that your broker doesn’t get paid commission on. Real Estate, mobile homes, Prom notes, cattle… the list goes on.
Since most brokers don’t actually understand the law surrounding PLANs, it’s not unusual for them to pass out incorrect information. As always, it is up to you to lead your team of advisers.
As always, speak with your custodian for details on their procedures.