The Checkbook IRA: Supreme Flexibility…or Audit Magnet?

August 1, 2017  --  Episode #2

Transcript    ∙    Links & Resources    ∙    Discussion



  • Setup process is complicated and involves hiring an attorney to set up an LLC, which is then acquired by your IRA (see transcript for more details)
  • Your access to capital while using this tool is instant and extraordinary, and you could save dramatically on custodial fees, but…
  • …You’re still subject to all of the rules and responsibilities of using a self-directed IRA
  • There is another tool that gives all of the benefits of a checkbook IRA, but is much safer.  It’s covered in the next episode.


Which popular, self-directed IRA investing strategy literally guarantees that your custodian is reporting your activities to the IRS?  I’m Bryan Ellis and you’ll find out right now in Episode #2 of Self Directed Investor Talk.


A quick note, thank you for the huge response to episode No. 1 of Self Directed Investor Talk! I’m so grateful to you. Please keep your comments and questions coming to me at [email protected]!

Well my friends, it’s popular… it’s controversial… it’s powerful…  and it’s deliciously appealing. It gives you power far beyond ordinary people… The power to become wealthy.  And it means never again having to ask for permission from anyone, at least not where retirement savings are concerned.

No, it’s not a super drug. It’s something that could be far better. It’s the wildly controversial checkbook IRA strategy, which gives you literal checkbook access to the funds in your IRA. With a promise of immediate access to your money and lower custodial expenses, the checkbook IRA has become wildly popular among self-directed investors.

So, what exactly is this crazy, powerful strategy for checkbook control of your IRA savings? Here is how it works.

First, you’ve got to have an account at a self-directed IRA company. We’ll imagine you have $750,000 in your IRA, and you want to have checkbook access to the funds. So, you call up your attorney and ask her to setup a brand new LLC – a common type of business entity – and to put you in control of the LLC.

Next you instruct your IRA Company to purchase 100% of the ownership of that LLC using the money in your account. So, your IRA company wires your $750,000 to the LLC bank account that you control and your attorney sends the ownership papers to your IRA company.

Voila! What you now have is an LLC funded with 750 grand from your IRA. You, as manager of the LLC, have control over the bank account and are free to do what you please with that money.

And there’s the rub. You see, you’re not free to do with that money as you please. Far from it.  All the rules and restrictions that apply to your IRA account still apply to your new IRA LLC.

So, here is the question:  do you know those rules well enough to avoid breaking them? Probably not. Some of those rules are really simple such as the one where you can’t use your retirement funds to pay yourself a salary. But some are not at all simple, such as the prohibited transaction rules that are so complex that they require private letter rulings from IRS for clarification.

Remember:  “prohibited transaction” is the term for breaking any of the many rules that govern how you can use funds in a retirement account. And as it turns out, having the unbridled authority offered by a checkbook IRA makes it really, really simple to commit prohibited transactions.

This is why the IRS is so interested in knowing exactly who is using the IRA-LLC strategy, or so they say. Our pals at the IRS are tasked with collecting enough taxes to make a dent in the nearly $20 trillion national debt. They figured these checkbook IRA accounts are where they are likely to find lots of mistakes – prohibited transactions, they call them – that will allow for huge taxes, penalties and interests to be levied against these cash rich retirement accounts.

In fact, the IRS changed the rules in 2014. Before then, you could use the checkbook IRA strategy and it was totally private. But as of 2014, your custodian is now legally required to report your ownership of private LLC’s to the IRS… another example of Big Brother snooping in your private affairs.

So, why would an investor take the risk of using a checkbook IRA when the risks are so clear? 2 primary reasons:

  1. You get fast access to your money. Here is an example: If you choose to purchase a foreclosure property at auction, chances are that the auctioneer is going to demand payment right away. Frankly, most IRA Companies simply aren’t able to respond that quickly, making it literally impossible to participate in some deals requiring quick action.
  2. Lower Fees. Many self-directed IRA companies charge rather hefty fees for facilitating transactions in assets like real estate, intellectual property or any other non-liquid asset. By setting up a checkbook IRA, the investor pays a transaction fee one time to the custodian when setting up the checkbook IRA itself, but never again as future transactions are handled by the LLC and not directly by the IRA Company.

These are very compelling reasons to consider the use of the IRA-LLC strategy.  But many advisors are negative on IRA-LLC’s simply because the incredible flexibility they offer gives you more than enough to, as they say, “hang yourself”… and the financial ramifications of committing a prohibited transaction can be rather severe.

But don’t let that get you down. If the nature of your investing strategy requires quick access to your IRA funds, then by all means, go ahead and use the checkbook IRA. Just be sure to get advice from really competent IRA attorneys about each transaction.

But did you know there is a way to get all the benefits of a checkbook IRA, immediate access to capital and much lower transaction fees, without the added burden of IRS aggressively looking over your shoulder?  Additionally, this alternative to the self-directed IRA allows for far greater tax advantages, far greater retirement savings, and far simpler resolution of discrepancies like prohibited transactions.

My friends, you need to hear about this little known financial tool that is clearly superior to self directed IRA’s. I’ll tell you all about it in episode #3 of Self Directed Investor Talk, which is available for download right now here on SelfDirected.org and on iTunes, on iHeartRadio, and atStitcher. Go ahead and download it right away.


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Bryan Ellis

I am host of Self Directed Investor Talk, which I'm told is America's #1 podcast and for affluent self-directed investors. I'm also something of an expert in self-directed IRA's, solo 401k's and 1031 exchanges. You can find more of my writing in some cool places like TheStreet.com, Entrepreneur.com, ThinkRealty and even Forbes (that was always one of my goals!). I live in metro Atlanta, Georgia with my wife and business partner Carole Ellis(she's a real business partner... not just because she's my wife... I'd want to work with her if I wasn't married to her... and I'd want to marry her, too). I also have 4 children ranging in age from 2 to 20 (yes, you read that correctly). It's my goal to be the name everybody thinks of when they think of Self-Directed IRA's and Solo 401(k)'s.