Establishing a Self-Directed or Checkbook IRA LLC? Learn what those options are and the steps to do so from the exchange guru of IRA Advantage himself, David Moore! Your best source for info on IRA real estate and investing.

Establishing A Self-Directed or Checkbook IRA LLC

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How do you do a basic self-directed IRA? Well, I’ll tell you. To start, we’re not a custodian. The reason I’m not a custodian, is the custodian we use has been doing it for 30 years, and they charge most of my clients about $180 a year to be the custodian. When we’re doing a basic account, I’ll say, “Look, you know, you can pay me a couple hundred dollars to do this thing, or just go online, IRA Services Trust Company is the custodian we use. They charge a base quarterly custodial fee of $25 and upcharge per investment. I think it’s $20 for a membership in a checkbook IRA LLC.” Obviously, they can’t survive on that. So, if you just have a base account and you had 10 different investments at $20 per investment, it starts adding up. And with the checkbook IRA, there’s one investment they make, the membership interest in that checkbook IRA LLC, and that takes care of them. To set up a basic account, all we’re doing is establishing a custodial account with an IRA that will allow you to make those investments.

What are some names of those custodians? IRA Services Trust Company, Pensco Trust, Equity Trust, Entrust, Sterling Trust, Sunwest Trust. They will allow you to do this stuff. But I’ll warn you, if you call them up and you ask questions, you’re going to call, you’re probably going to get an automated answer, and you’re probably going to wait there. We’ve got so many accounts with these guys, and I still have to wait. Sort of irritating, but anyway, they’re fine.

Establishing A Self-Directed or Checkbook IRA LLC

What is a basic IRA account good for?

If you want to buy a passive investment that’s not time sensitive, a basic account’s going to take care of you. If you want to buy into one of Lindsay’s projects, that’s going to be just fine. You’re just going to sell a membership interest in an LLC, the custodian’s going to want to see the operating agreement, all the agreements for you, and they’ll make the investment. And that works just fine for a passive investment or something that’s not time sensitive. They might have a 24-hour funding policy, but it’s typically going to take more than that to get it done. Figure 48 to 72 hours from the time they get everything for them to make the investment.

The advantages of investing with a Checkbook IRA

With that said, those basic accounts don’t work very well if you want to go out and buy a rental house. I have people that do a lot of hard money stuff, and they need to have that loan set right now to get a deal funded. Checkbook IRA is what takes care of that. A checkbook IRA will allow you to manage a property. So, when we do a checkbook IRA, we still create that custodial account, and then instead of the custodian making the investment into the ultimate investment, the custodian makes one investment.

So, if you look at this bubble chart, we’re going to take whatever source of funds, and we can take multiple disqualified sources. This LLC could include you, an IRA, a 401K plan, your Roth and traditional IRA’s. It could include any combination of things. Spouses can be in there, a group of people can be in … Actually one last comment, I got back, double-backed  disqualified parties. What’s really interesting is you can transact along with the disqualified party, you just can’t transact between them for the benefit of disqualified parties. So, if I want to take plan money and personal money to go buy something… I can do that. If I want to loan my brother money, I can do that. Siblings are not disqualified parties to one another. Aunts and uncles are fine. So, it’s just when you look at ascendants, descendants, their spouses, or any that are controlled by that. You can go horizontally. Siblings are fine, aunts and uncles are fine. Sort of funny that way.

So, we can take any combination of disqualified parties, and we can aggregate different accounts if we want, to move it into the custodial account. Then instead of the custodian making investment X, or the private loan to real estate directly, we’re going to have the custodian make one investment that is in the membership interest of the checkbook IRA LLC. So, we put the LLC together, and the operating agreement is all IRA specific. We do the articles to get the federal tax ID number. As soon as we’ve got all that together, we’re going to get the information to you, you’re going to go to the bank, open a checking account in the LLC’s name and EIN. You as manager of the LLC are signer on that bank account, so then, for you to make one of these investments you just negotiate the purchase in the LLC’s name and EIN, write the check for the earnest money, and write the check to close the thing.