What exactly is a Self-Directed IRA, and how does it relate to a checkbook IRA or rollover business startup? David Moore, CEO of Equity Advantage, introduces Self-Directed IRA accounts and how they differ from other kinds of self-directed retirement accounts.
What Is a Self-Directed IRA Account?
A Self-Directed IRA is a retirement account that allows you to make self-directed investments. It is held at a trust company that permits those investments, with the trust company serving as the account’s custodian.
In a basic Self-Directed IRA, the custodian holds the account and executes investments when you submit paperwork. This can work well for single, non-time-sensitive, and passive investments.
Is a Checkbook IRA Different From a Self-Directed IRA?
No, a checkbook IRA is simply another kind of Self-Directed IRA. Unlike basic accounts, where investment transactions go directly through the custodian, a checkbook IRA places an IRA-owned limited liability company, or LLC, between the custodian and your investments. Your IRA owns the membership interest in the LLC, while you serve as its manager.
Funds move from the IRA custodian into the LLC’s checking account at the bank of your choice. From there, you invest by writing a check from that account.
This can be useful if you plan to manage property investments, make several investments, or act on opportunities that require a quick response.
How Does a Rollover Business Startup Compare to a Self-Directed IRA?
A rollover business startup, or ROBS, is another self-directed retirement arrangement, but it uses a 401(k) rather than an IRA. A new 401(k) is created, and the plan invests in a new C corporation by purchasing its shares.
This structure allows you to operate the business and pay yourself a salary while your retirement plan owns shares in the company. Retirement funds can provide startup capital for a franchise or a business you’ve wanted to launch.
Which Self-Directed Retirement Structure Fits Your Plans?
The right structure depends on what you want to do with your retirement money. If you prefer to have a custodian carry out your investment transactions, a basic Self-Directed IRA may be for you. If you’d like to handle those transactions yourself through an IRA-owned LLC, a checkbook IRA may be a better fit. A rollover business startup also provides another option if you would like to use your retirement funds to fund a business you can work in.
In each of these arrangements, you direct the investments but the decisions are carried out differently according to the structure of the account.Taking time to figure out how you want to invest and how involved you want to be will then make it easier to choose a structure that fits your plans.
If you are considering self-directed investing, contact IRA Advantage today to talk through your goals and compare the options for your next investment.
The Guys With All The Answers…
David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 503-635-1031.
FAQs About Self-Directed IRAs
What is a Basic Self-Directed IRA?
A Basic Self-Directed IRA is a retirement account held at a trust company that permits self-directed investments. You choose the investments, and the custodian carries out the transactions when you submit the required paperwork.
Is a checkbook IRA a type of Self-Directed IRA?
Yes. A checkbook IRA adds an IRA-owned LLC that you manage. Investment funds move into the LLC’s checking account, allowing you to write checks for investments from that account.
How Does a Checkbook IRA Differ From a Rollover Business Startup?
A checkbook IRA combines an IRA with an LLC that allows you to write checks and be more actively involved in your investments. A rollover business startup on the other hand combines a 401(k) with a C corporation, allowing your retirement account to own a business that you can also work for.
