What is Checkbook Control?

Checkbook Control is the maximum amount of flexibility you can have with a retirement plan.  Self-directed IRA and Solo 401(k) plans that provide checkbook control put you directly in charge of all investment activities, including:

  • Selecting the asset types to invest in
  • Identifying individual opportunities
  • Contract negotiations and execution
  • Funding of asset acquisition and maintenance expenses
  • Receipt of income into the plan account

When it comes to investing with your plan, checkbook control structures eliminate any need for 3rd party processing of investment instructions, processing delays, or per-transaction fees.

How Does Checkbook Control Work?

Most retirement plans are administered by a 3rd party – generally a financial services firm.  The company will hold and report on the plan, as well as offer and process investments for the plan.  In this model, the administration and investment activities are “bundled”.

A Checkbook IRA or Solo 401(k) is designed to un-bundle the plan administration and investments.  While a 3rd party administrative provider may be required, their role is limited.  You will have full authority when it comes to investing with the plan.

Checkbook control is built slightly differently in the IRA and 401(k) plan formats, but the end result is the same.

Checkbook IRA LLC

In the IRA model, a two-layered structure referred to as a Checkbook IRA LLC  is created to achieve checkbook control.

  • A self-directed IRA held by a non-traditional custodian
  • A specially formed Limited Liability Company (LLC) that is the sole investment of the IRA

All IRA plans are required to be held and reported on by an institutional custodian.  A non-traditional custodian operates under the same compliance guidelines as a mainstream brokerage but has the necessary staff training and paperwork to document an IRA’s investment into the more individualized types of transactions that take place outside of the public exchanges.

The IRA is setup and funded via some combination of new contributions and rollovers or transfers from prior retirement plan(s).

The IRA is then invested into the LLC entity.  This is much like a more conventional IRA buying shares of a mutual fund.  At that time, the IRA cash is sent to the LLC, and to the bank checking account you will have established for the LLC with our help.

The LLC is then used to make all plan investments.  As the non-owner manager of the LLC, you can sign a contract, pay for expenses, and receive income directly.  There is no need to go through the custodian.

The custodian remains in place, but only for the purposes of annual reporting and the processing of future IRA layer events like new contributions, distributions, or transfers from/to other retirement plans.

Basically, you control the checkbook… thus the name.

Checkbook Solo 401(k)

Checkbook control in a Solo 401(k) plan is a more direct feature of the plan.

A Solo 401(k) is a special form of retirement savings trust.

As the self-employed person and owner of the business that is sponsoring the plan, you act as the trustee for that trust.  In this role, you have control over the plan.

Most businesses hire a 3rd party administrator to run the plan and manage plan investments – the bundled model we mentioned above.  This makes sense for a larger business with employees, as the type of 401(k) required can be difficult to administer.

Because the owner-only nature of the Solo 401(k) plan means the plan is very simple to administer, there is no need for a 3rd party administrator.  As such, you as the trustee will simply open a trust account at your favorite bank and/or brokerage.  The institution holding the account will not be providing a layer of 401(k) services, and will not be limiting your investment choices as a result.

As the plan trustee, you can then use the trust to engage in any allowable investment, and will be able to execute contracts and transact on behalf of the plan directly.

Again, you control the checkbook…

Why Checkbook Control?

When you want to take full control over your retirement plan investing, checkbook-style plans provide many advantages, including the ability to act immediately, and reduced paperwork and fees.  If your non-traditional asset investment goals include multiple different assets, or investment types that are either time-sensitive in nature or generate a lot of transactions over time, then a Checkbook IRA LLC or Solo 401(k) plan will be by far the more effective and efficient tool for the job.

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