Apprehensive about establishing a "Checkbook IRA"

[Daryl Dearman]

I believe I want to purchase some real estate using a Checkbook IRA. Much of my retirement is currently sitting in mutual funds with a large investment company. With that, I'm extremely comfortable with the processes and the risks involved.

I'm apprehensive about transferring funds to a custodian while having an LLC established and opening up a bank account in the name of the LLC.

(A) What happens if that custodian bails with my cash during that time frame?

(B) When title on the property is held as "xyz company FBO me" and something happens to XYZ company how is that handled?

(C) Lastly, there will be times where the amount in the bank account will exceed $250K. How do other investors in similar situations mitigate the risk of exceeding FDIC insurance limits?

I'm aware of the prohibited transactions and am comfortable with how things will operate on this side of the desk, it's the other side I'm not so sure about.   Thanks for sharing your knowledge and experience!

[Brian Eastman]

@Daryl Dearman

The Checkbook IRA LLC structure is more robust than it looks like you may understand.

Self-directed custodians are still federally and state regulated. Just because they have a different processing model than a brokerage house does not change the regulatory format. Your account with the custodian will be FDIC insured, and no custodian is just some guy on a corner who is going to split the country with your savings.

The property is not titled to the IRA. The IRA is only on title as the member of the LLC. The property itself is vested in the name of the LLC. Should a custodian go out of business or even if you just decided you prefer the services of an alternate custodian, the IRA is moved and a minor amendment to the LLC reflects the change in LLC membership to the new custodian. In the event of a custodian failing, the Fed would appoint a successor custodian.

If the LLC holds more than $250K cash for any extended period of time, it can open multiple LLC checking accounts so as to gain full FDIC coverage.