self directed individual retirement account

A checkbook IRA, also known as a self-directed IRA or a checkbook-controlled IRA, is an investment vehicle that allows the investor to control how his or her funds are invested. Checkbook IRAs are a popular choice among investors because they allow for faster investment decisions and more freedom.

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How it Works

To create a checkbook IRA, you begin by establishing a new IRA with a participating custodian, which is a bank or other financial institution that manages your IRA services. Your custodian will maintain the account’s transaction records, file IRS reports, issue periodic statements and handle all of the account’s other administrative duties.

After choosing a custodian, you will authorize the custodian to transfer your investment funds into the account. You must then establish a Limited Liability Company to control the IRA. Once you have established the LLC, you will instruct your custodian to invest your IRA into the LLC, which makes your IRA the company’s owner. Finally, you will open a checking account in the name of the LLC at the institution of your choice. With this arrangement, you will have the power to authorize all of the investment decisions made with regard to your IRA without involving the custodian.

Learn more about setting up a self-directed checkbook IRA. Read our step-by-step procedure to set-up a Checkbook IRA.

Benefits of Checkbook IRAs

  • Expedited investments. With a checkbook IRA, you have the ability to make changes to your investments the moment you hear about a new opportunity, as opposed to waiting for a slow custodian to make changes for you.
  • Fewer fees. A checkbook IRA allows you to invest as much money as you want, as often as you’d like, without paying the asset-based fees or transaction fees typically required for IRA investments.
  • Investment freedoms. With a checkbook IRA, you have the freedom to invest your money in almost any asset you choose, including precious metals such as silver and gold bullion.

Checkbook IRA Rules

Self-directed IRAs offer more investment freedom and control than most other retirement accounts, but there are still a few restrictions. The primary restrictions for checkbook IRAs are detailed below.

  • No prohibited transactions. A unique law prohibiting certain transactions applies to self-directed IRAs. Under this law, you cannot use your IRA to personally benefit any of the account’s fiduciaries, yourself or your linear relatives.

Restricted investments. Self-directed IRAs can invest in almost any type of asset, including private businesses, real estate and precious metals. However, some investments are still prohibited. Prohibited investments for self-directed IRAs include collectibles and life insurance.