Checkbook IRA Pros & Cons

[Christopher Steiner]

Hello BP Community! I am interested in note investing and would like to rollover some 401k funds into an SDIRA for my first purchase. I am trying to understand the differences (pros / cons) in the model where the custodian handles all transactions and the IRA owns the asset vs. the SDIRA investing into an LLC that I manage (Checkbook IRA)? Based on my research, it seems that the checkbook model is faster for conducting purchases, but puts more responsibility on me (as LLC Manager) to perform the due diligence on the investment, ensure the transactions are compliant and maintain the books for the LLC. If I were planning to consult with a tax adviser and attorney to work through this process, I assume that would be sufficient to mitigate the risk. Are there other aspects I am missing? Thanks!

[Brian Eastman]

@Melanie McDaniel

Firstly, I would recommend caution and a discussion with your IRA provider and tax attorney regarding wholesaling in an IRA. There is real potential both for self-dealing and exposure to unrelated business taxable income (UBTI) taxation as this may be deemed a trade or business conducted on a regular basis.

To your direct question, if YOU found the buyer, you cannot pass YOUR finders fee to your IRA. That would be you providing a benefit to the IRA and a self-dealing prohibited transaction.