Self Directed IRA - checkbook control or not?

[David Chance]

Looking to see what type of SDIrA others who invest in notes are using -->  checkbook or custodian.  I don't like all of the custodian fees, but I think it is safer (with regards to the IRS) than the checkbook.

I'm looking to open a SDIRA or an SDIRA LLC with checkbook and putting in $20k (for starters) for the purposes of investing in notes and I'm trying to decide which way to go.

Thanks in advance for any insight.

[Brian Eastman]

@David Chance

Firstly, there is absolutely no risk difference with respect to IRS compliance between using a custodian directly and using the IRA owned LLC to provide checkbook control. In either case, it is your responsibility to adhere to the rules against self-dealing. Anything you are reading that says the checkbook model is "riskier" is spin trying to sell a particular business model.

Where the checkbook control becomes a benefit is when the investment goals demand that type of responsiveness and flexibility. For a single, mid-to-long term note or two, having a custodian serve as intermediary and process the transaction is generally not a significant barrier. If you will be investing in a number of short term notes and therefore creating more transactions and perhaps some time-sensitivity for getting things done, then having a 3rd party processor could be a barrier in terms of paperwork, processing delays and per-transaction/per-asset fees. That is when the IRA LLC becomes more effective and efficient.

One option would be to work with a custodian that supports the checkbook model as a starting point (not all do as it can cut into their fee revenue). You can upgrade and add the LLC in the future as your needs demand. Kingdom Trust Co and IRA Services Trust Co are probably the best bets for such a strategy.