3713.09 / What should clients know before establishing a self-directed, or “checkbook control” IRA?

Clients who are interested in alternative or non-traditional investment strategies often wish to use their retirement funds for those investments. The IRS limits the types of investments that can be made within the traditional IRA structure. For many, a self-directed “checkbook control” IRA can provide a investment tool that allows the account owner to have a greater degree of control over retirement investment choices, all while minimizing custodian involvement and the red tape associated with traditional self-directed IRAs.

A checkbook control IRA is an IRS-approved retirement account structure that allows the account owner to make independent investment decisions. Like self-directed IRA owners, owners of checkbook control IRAs can investment in non-traditional assets, such as bitcoin, precious metals and real estate.

To form a checkbook control IRA, a self-directed IRA LLC is first formed. The LLC establishes a checking account like any other business entity. However, the LLC is funded using the IRA funds—which are then transferred to the checking account. With the advice of tax counsel, the IRA owner can become the managing member of the LLC and retain signature authority over the checking account (i.e., “checkbook control”).

The checkbook control can allow the IRA owner to act more quickly when making an investment. Despite this, the owner is prohibited from receiving assets—and any distributions must be properly processed through the IRA custodian, who is required to report the distribution.