The Checkbook IRA LLC
A popular technique used by many RealTrust clients is to form a new LLC for the purpose of acquiring, improving, flipping and/ or holding real estate.
In this context, the IRA Holder becomes the Manager of the LLC, sets up a bank account for the LLC, funds the LLC with IRA or 401(k) cash and thereby gains “Check Book Control” over the monies in the LLC operating account.
Here's How It Works
1. Open a RealTrust Self-Directed IRA or 401(k)
2. Fund your RealTrust Account
3. Choose "The Check Book IRA LLC" as your Investment Alternative
4. Set up Bank Account for IRA LLC
5. Process the LLC Capitalization Transaction
6. Verify Documentation is Complete, Accurate and Fully Executed
7. Transfer Funds to LLC Checking Account
8. IRA Holder acquires and manages real estate (or other assets) under the LLC
*Our affiliated attorneys at “Real Estate Law Firm” are available to provide the LLC formation and document preparation services, often for substantially less than many competing organizations.*
Title to the property acquired will be invested directly in the name of the LLC (rather than held by RealTrust fbo the IRA Account) and RealTrust will serve as custodian/administrator of the pertinent LLC Member Units. With checkbook control, the Manager can pay ongoing expenses, contractors, mortgage payments, property taxes, etc., all without having to call on the custodian/administrator of the IRA Account. Revenues, such as rent and sales proceeds, including capital gains, will return to the LLC on a pass-through basis. IRA Account members of the LLC will enjoy tax-advantaged treatment on a pro-rata basis, but may still be subject to DFTI (discussed in The Real Estate IRA section) if the LLC’s acquisition of the real property was leveraged through debt financing. The Check Book IRA LLC vehicle is often used when “partnering” one’s IRA/401(k) funds with co-investors, whether the partner's funds are tax-advantaged or otherwise.
With such control, however, comes the responsibility of performing the administrative and record-keeping functions otherwise handled by the custodian/administrator. The charter documents for the LLC must be drafted to ensure compliance with the rules pertaining to self-directed IRA investing. In other words, the on-line LLC filing “specials” may not do the trick. The LLC Members and Managers remain subject to the pertinent IRA/401(k)-related rules, and may fail to account for applicable taxes, the plan asset rules, and/or prohibited transaction violations. Be sure to seek the advice of competent legal and tax counsel when going down this path.
|Instruction & Acknowledgment Letter for IRA||Instruction & Acknowledgement Letter for 401k|