Jeff Dixon By Jeffrey Dixon, MBA, CISP, SDIP

By Jeffrey Dixon, MBA, CISP, SDIP

When you open a Self-Directed retirement account, does it come with a checkbook?  We get asked that question often.  The answer is “No”.  The “Checkbook IRA” (The IRA-Owned LLC) is an asset your IRA invests in.

What is a “Checkbook IRA”?

After you open an IRA with us, you have a third party (like a CPA or tax attorney) create an LLC to form a “Checkbook IRA.” The IRA is the single member owner. You are the manager. You have signatory authority over the LLC. We do not create this LLC and you are not permitted to create it yourself because that would be a “prohibited transaction”.

After your LLC formation documents are reviewed and approved, the next step is to open a business checking account at a bank of your choice.  You then complete a DOI Form and thereby move funds into the IRA checking account. At this point, the IRA has acquired the LLC as an asset. (Keep in mind you do need to leave a minimum of $325 in the IRA account as a minimum cash balance.)

The LLC can now do its own investing activities. If you want your IRA to invest in real estate, you buy the real estate in the name of the LLC, sign the contract and other purchase documents as the manager of the LLC. You pay for the property with the funds in the Checkbook Roth IRA and as a result, no investment paperwork needs to be sent to us for review and approval since the IRA is not making the investment directly.

Why do people want to use an LLC?

For many it is simply because they like the control that the LLC provides them. However, sometimes it is needed. There are some assets that we do not agree to hold in the IRA. However, this LLC can make these investments.

Using an IRA-Owned LLC does not change any of the IRS rules regarding prohibited parties or prohibited transactions. You can read about those HERE.

Your “Checkbook IRA” can borrow funds to invest.  If using financing in buying real estate, the loan must be non-recourse, made to the LLC with no personal guarantees from you or a prohibited party to you.  We have a list of non-recourse lenders we can share with you.

Are there reasons to not use an IRA-Owned LLC?

Yes. When you use a “Checkbook IRA,” you lose the extra oversight on the investment documents as these are not reviewed by our Compliance Department. Many investments are very easily done within the IRA and you can avoid the cost of the LLC formation.

If you have additional questions on this topic or any other Self-Directed retirement issue, feel free to contact uDirect at 866-447-6598 or email us at