In this clip from the latest Basic IRA Continuing Education course, owner of IRA Advantage David Moore outlines the steps of buying a property with your checkbook IRA!

Buying The Property with A Checkbook IRA

Watch, Listen or Read:


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.

The downside is, like Quinn said, you have no safety nets so you’ve got to make sure that anything you write a check for, anytime there’s money going in or out of that account, you really understand what it’s for and that you’re not committing a prohibited transaction. But this structure works great because we have people that want to go buy REO properties, bank owned stuff, times to auction things, things that have to be done now. Lots of people are building these days with private funding. For example if Timmy needs $50,000 tomorrow, with a basic account, you’ve got to submit Timmy’s note and everything else to do with Timmy to the custodian and get their approval. With a checkbook IRA, you just write a check. With a solo 401K plan, you just write a check.

By the way, with solo 401K plan if you want an LLC too, that’s fine. We’ll just put an LLC together, where your 401K plan ends up a member of the LLC and you’ve got that level of protection if you want to use that too, but you don’t have to have it.

So, if you’re a broker, you probably like this a little better than a basic account.

Self-Directed IRA Real Estate Buying The Property with A Checkbook IRA

Class question:

David, I’m operating under the assumption that your solo 401K is always deductible, in other words, pre-tax. Can you set up a solo 401K where you actually pay the tax and then…

David Moore’s Answer:

Yeah, have a Roth. Yeah. That’s what I’m saying. So, with our 401K plans, we put a 401K plan together and it’s got a conversion component. If you want to do an in-plan roll over to Roth, you can do that.

Class question:

Okay, but yet your contribution to your solo 401K, your contribution to your Roth IRA can’t exceed that $6,500, if you’re over 50, so that $6,500…

David Moore’s Answer:

Well I mean, if you’re talking about a SEF IRA or a solo 401K, you’re up in the mid 50’s. It makes a big difference. And that’s why people like it. If you want to get beyond that, then you’re talking defined benefit plans and you’re talking more cost and more structure and for people who make huge money. That’s what they’re doing.