Custodian IRA vs Checkbook IRA

A Checkbook Control IRA is a more efficient and effective way to utilize a Self-Directed IRA. You can invest into real estate, and much more…

Most Effective Use of Your Self Directed IRA

While custodians that allow investments into “non-traditional” assets are vastly superior to “traditional” custodians, a Checkbook Control IRA is a more efficient and effective way to utilize a Self-Directed IRA. This is especially true when the structure has been designed by an attorney who specializes in this area of ERISA law. Safeguard Advisors attorney consultants are ERISA experts.

Checkbook Control Is Vastly Superior

Many investors question whether a Checkbook Control IRA (also known as an IRA LLC, Real Estate IRA LLC or Self-Directed IRA LLC) is necessary for investing in real estate with a Self-Directed IRA (SDIRA). Technically, you can invest into real estate, and other non-traditional assets, directly from an SDIRA custodial account. However, there are a number of compelling reasons why checkbook control is highly desirable.

The following are the three (3) main advantages:

1. Costs

By law, every qualified retirement plan must have a custodian or trustee approved by the IRS in accordance with the requirements of IRC section 408. Custodians are banks and other institutions approved by the IRS to hold retirement funds. And, like all other banking type institutions, they are compensated through an asset and transaction fee structure. For a $100,000 account, these fees can range anywhere from $300 to $800 per year, depending upon the custodian chosen and the number of transactions executed.

While it is less expensive initially to establish a custodial SDIRA, a one-time set up fee for an IRA LLC will save money in the long term. By transferring assets held by the custodian into the LLC, ongoing or recurring fees are eliminated or greatly reduced. This savings is magnified with multiple investment assets. Additionally, establishing the custodial accounts can be tedious and time consuming. We handle all these details as part of setting up the Checkbook Control IRA.

2. Flexibility

When executing an investment out of a custodial account, the account owner must fill out a request and submit a substantial amount of paperwork for approval. The account will likely be charged for having the paperwork reviewed and then charged for transferring funds to the appropriate receiving authority. Many account holders experience frustrations when delays are encountered related to investments or transactions that are time sensitive. In fact, it is impossible to participate in any transaction involving immediate transfer of funds. Auctions and foreclosure are good examples.

The IRA LLC offers the benefit of providing the account owner much more flexibility and control over investment decisions and the ability to act on opportunities in a more timely fashion. With an IRA LLC, the account owner has “checkbook control”, and can make and act on investment decisions immediately.

3. Asset Protection

A Limited Liability Company (LLC) is a hybrid legal business entity that combines aspects of both a corporation and a partnership. It consists of members who have membership interests and may be individuals, corporations, other LLCs or, in the case of retirement plans, the IRA account is the member.

The LLC has a legal existence separate from its members. Like a corporation, it provides members with limited liability for the actions and debts of the company. And, it allows members to actively participate in management and have control.

We strongly believe in the asset protection afforded to the IRA account through the use of an IRA LLC.  Should the LLC be sued, any liability is limited to the assets held within the company. The IRA account holder, and any other assets he may be holding outside the LLC, are completely protected.

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