Does anyone use a Checkbook IRA LLC?

[Alfred Bell]

I currently utilize a self-directed IRA. My IRA monies have been invested in a real estate project. I'm coming out of that investment soon and I now want to use those IRA monies for buying at trustee sales. This "Checkbook IRA LLC" seems like it could be the ideal vehicle for this. I'm not familiar with their workability, validity with IRS, etc.

Does anyone use or know about these? Thanks in advance.

[Jeff S.]

I see this was an old thread that was resurrected. There’s another option you might consider, that's gaining popularity.

But first, if you're breaking into a cold sweat because you're afraid or don't understand the process, then don't do it. Open a plain vanilla SD IRA under a custodian and learn the rules. If it's simply about money, and you are making income and paying yourself, then you might consider a self-directed 401k, with (or without) checkbook control, instead. It has many advantages. Among them:

1) Depending upon your age, you can shelter approximately $49k per year compared with $5 to $6k in an IRA.

2) An SD 401k will also cost several thousand dollars to open (once) but you won't have an LLC to maintain or pay California's $800 minimum annual franchise tax. Long term, this will save you a lot of money.

3) The prototype plan you obtain will come with an approval letter from the IRS, eliminating any worry that the IRS would disallow it.

4) You can still go the SD 401k route but without checkbook access and save some money. Here, you’ll still have a custodian.

There are other 401k benefits, such as a UDFI exemption (income attributed to a mortgage) that might or might not benefit you.

And just to scare you, in all cases (SD IRA and SD 401k) there are concerns about the amount of participation you are allowed over the property. That is, can you manage it, perform repairs, or even just do the books? The IRS is unclear about much of this so even if you scrupulously follow the investing rules through a custodian, you can still get into trouble. With this in mind, my opinion is that it's best to leave the physical real estate assets out of a retirement plan and use it only to invest in paper (notes, syndications, LP's, etc.). These topics have been well covered in other threads here and you might also do a search.

Jeff