One of the main benefits of a Checkbook IRA or Solo 401(k) plan is that you get to choose the bank where plan funds are held.  That bank is where the “checkbook” is held and becomes the operating account from which you can directly manage plan investments.

While you can certainly just open an account at the bank you use personally, that may not always be the best or simplest option.

You are also not limited to just one bank account within your plan.  In some cases, you might need or want to have multiple accounts.

Evaluating your needs and selecting the right banking structure to achieve your goals is an important part of getting the most out of your self-directed retirement plan.

Types of Accounts

Depending on your plan format, you will either have a LLC or trust entity under the umbrella of your plan.  You will be the signer for the entity and can establish and operate the entity bank account.

Your plan can establish one or more accounts, including:

• Bank checking and/or savings
• Credit union checking and/or savings*
• Brokerage
• Cryptocurrency exchange

So long as the account is in the name of the entity and tied to the entity tax ID, you are good to go.  The account does not reference the underlying retirement plan because the financial institution is not managing the IRA or 401(k) itself.  They are just holding a LLC or trust style account.

* Not all credit unions support entity accounts or will see your retirement plan entity as a qualifying member.  Some credit unions will hold a LLC or trust account for an IRA-owned entity, but may not open a trust account for a Solo 401(k).

Design Flexibility

You can add or remove accounts at any time.  You can also move funds between different accounts within your plan easily.  So long as funds stay within the envelope of the plan LLC or trust, no special paperwork or reporting is necessary.

This flexibility allows you to start simple and implement a more sophisticated structure in the future if your needs change.

What Features do You Need?

The types of investments you intend to make with your plan will drive your decisions about what kind of account or accounts to open.

The basis of your checkbook IRA will be a checking account with a bank or credit union.   This core account will provide you with features such as:

• Debit cards
• Cashier’s checks
• Electronic inbound deposits
• Online bill-pay
• 3rd party payment apps like Venmo or Zelle
• Separate sub-accounts, such as to hold tenant security deposits if required by local law

Certain investments require specialty accounts.  If you want to have the ability to invest some plan capital in stocks or funds, you will need a brokerage trading account.  To hold digital currencies requires setting up a cryptocurrency exchange account for your entity.

Many investors will setup a checking account and integrate a stock trading account to keep contingency capital and earnings deployed in conventional assets like mutual funds.

Same or Different Bank?

It can be convenient to use a financial institution you already work with, and many clients go this route.

Keep in mind, however, that your retirement plan must be kept entirely separate from your personal finances.  Depending on your temperament and organizational skills, you may or may not want to have your Checkbook IRA or Solo 401(k) account in close proximity to personal accounts.

Using your Checkbook IRA debit card to buy your groceries would be a bad thing.

Several clients choose to use a different bank for their self-directed retirement plan specifically to avoid the risk of an inadvertent mix-up, and that makes good sense.

Banking Across State Lines

You might live in Oregon but be investing in Texas using an IRA LLC domiciled in Texas.  This can be confusing for some bankers.  Your Oregon bank might want to see your Oregon LLC registration documents, which you will not have and do not need if you are not conducting business that creates an Oregon nexus.

Unfortunately, many bankers do not understand business entity law and are just operating from their checklist.  If it says they need to ask for your Oregon LLC documents, that is what they do.  They might not open an account for your Texas LLC if you cannot provide the items listed on their checklist.  Really.  It happens.

The solution is to work with a bank that can easily deal with establishing accounts for a business entity in any state.  Most banks can, but it is a good question to ask very early in the process of researching a bank if you are investing outside your own state.

Potential Investment Restrictions

If you have an interest in placing some of your funds into cryptocurrencies, be sure in advance that your bank will support that.  Some banks fear the potential of money laundering risk with digital currencies and want nothing to do with the asset class.  As soon as you move money from your checking account to Coinbase, Gemini, or Kraken, you can get a letter notifying you of the bank’s intention to close your account.

Another challenge is anything having to do with cannabis.  Because federal law views cannabis as illegal, banking regulations prohibit transactions that go into cannabis related activities.  While there is no IRS restriction preventing investing an IRA or 401(k) into cannabis associated businesses, it is very difficult to actually fund such investments because of banking restrictions.  If you try to wire funds from your plan held account to “Ye Old Weed Shoppe, Inc.”, you may get questions or even a refusal to issue the funds.

Self-Directed Friendly Banks

You should be able to establish an account for your checkbook IRA or Solo 401(k) at most any institution, but it is not always easy.  Most bankers are just not familiar with these specialized types of retirement plans and may not understand your needs.

Fortunately, there are a handful of banks that have identified this problem and made a concerted effort to serve self-directed IRA and Solo 401(k) plan holders.  Working with one of these banks can have several advantages and simplify your plan setup.

Because these banks have trained staff familiar with the various plan formats, account setup is easy.  They know exactly what type of entity you have and what documents they require to establish the account.

While they are not acting as custodian for a Solo 401(k), they can often assist you in working with another firm to have a rollover sent to your Solo 401(k) held account with them.

They understand self-directed plan accounts can have low activity and provide accounts with low minimum balance requirements and limited fees to suit this type of usage.

Self-directed focused banks make it easy to work with them online and across state lines and are comfortable with most types of investment transactions you might want to execute with your plan account.

At this time, the banks that have specialty divisions focused on self-directed retirement plans include:

Choose What Works for You

Your ability to work with one or more financial institutions of your choosing under the umbrella of your self-directed plan gives you a range of options.

Take the time to think about your investing goals and the needs you will have from a bank, brokerage, or cryptocurrency exchange.

When you can work with banking partners that understand your needs and keep your operating costs low, it simplifies your life and makes your plan that much easier to manage.