Checkbook Control & Self-Directed IRAs

Checkbook Control & Self-Directed IRAs


Increasingly, individual investors are interested in taking more control over their retirement funds. In recent years, self-directed IRAs have emerged as a way for investors to diversify their retirement wealth by investing in real estate, businesses, precious metals, and other non-traditional assets within their individual retirement accounts.

Investors within these accounts have been able to diversify their portfolio, reduce or eliminate reliance on stocks, bonds, and mutual funds, and produce greater wealth for retirement than with more traditional retirement fund options. These self-directed IRAs offer many advantages, but not until a court decision in 1996 did they really open up total control to the investor with the advent of “checkbook control.”

Checkbook Control Emerges

Prior to a 1996 court case, every transaction within your self-directed IRA had to be carried out through a costly custodian. If you have property maintenance, even as minor as yard mowing in your IRA-owned real estate investment, you had to have a trustee make the payment. However, following the decision in the 1996 case of Swanson vs. Commissioner, a new type of self-directed IRA structure called the “checkbook IRA” emerged.

Flexibility & Control 

The checkbook IRA offers the owner of a self-directed IRA owner complete signing authority over the funds in the retirement account. In this manner, you have greater control over your investments and the flexibility to manage your assets more efficiently. Self-directed IRAs do not require checkbook control, but the option for such control meets many investors’ needs.

Obtaining Your Checkbook Control 

In order to obtain “checkbook control,” you must first establish an LLC that is owned by your IRA. Once you establish this new LLC, a business checking account will be set up in its name and linked to the funds in your self-directed IRA. You can purchase assets directly as well as use the funds for such needs as real estate repairs and property maintenance.

Quick Access Leads to Potential Growth

The access to funds allows savvy investors quickly purchase foreclosures, tax liens, or prime properties that sell quickly. Like all financial vehicles there are specific rules and restrictions that investors must follow in order to avoid penalties. For example, with real estate, you cannot live in the property as your own residence or vacation home; these restrictions apply to both you and your extended family. However, even with such restrictions, many investors enjoy the flexibility and growth potential that checkbook control within their self-directed IRAs offers.

Don’t wait on Your Account Administrator

Checkbook control is a way for interested investors to take greater control over their assets. Funds are available for purchase immediately and no longer do investors have to wait for an account administrator to make the purchase or write the check. For time-sensitive investments, such as auctioned items or quick sale property, this flexibility and control are essential for success.

In General

Again, like all investment choices, checkbook control within a self-directed IRA is an option for the interested investor. Performing due diligence of the rules, restrictions, and responsibilities of such an account is of paramount importance and part of the process of deciding if these options are the best fit for your investment goals.

Jeremy Davis was a councilor for financial expenses for years. He now enjoy his retirement by writing blogs to help with the difficulties of financial issues and retirement. Aside from writing blogs Jeremy enjoys walks with his wife, gardening and tutoring young children in math and history as part of his retirement routines.