Self-directed IRAs are becoming more widely known throughout the retirement planning crowd. In fact, their use has grown by 21% over the past few years and that number is expected to continue to rise as more individuals discover the power these plans provide. The checkbook IRA offers a unique account structure that makes a self-directed plan even more powerful and flexible in acquiring and managing assets to build retirement income.
Those who enjoy control (as in control over your own retirement funds and investing decisions) use self-directed accounts to acquire alternative assets to help grow income in retirement plans. Stocks, bonds, and mutual funds certainly have their value in retirement portfolios. But, the alternative asset class puts self-directed investors in a league of their own because they are able to choose their own assets based on things they personally know and understand. These assets provide true diversity, allowing self-directed account owners the ability to invest in things like real estate, private lending, private equity, hedge funds, and so much more.
Why Use a Checkbook IRA?
Good question. Here’s the answer.
Checkbook IRAs offer even more control for investors who like their finger on the pulse of investing opportunities. These investing tools are perfect for savvy individuals who are competing against others for that coveted asset that’s sure to be quickly snapped up.
With checkbook control over their IRA funds, investors have immediate access to that money and are able to write checks to pay for investments in heat of the moment. Instead of having to go through their plan administrators to invest, these plan owners can purchase investments in the amount of time that it takes to simply write a check. Obviously, this gives self-directed investors an edge that can be critical in acquiring assets in a timely manner.
The check writing ability doesn’t stop at simply purchasing an investment. If you have assets like rehabs and/or rental property, you can also write checks from your IRA for expenses related to those investments.
As beneficial as checkbook control IRAs are, they are somewhat complex to set up. One must first set up a single-member LLC in the name of your self-directed IRA and then name yourself as the managing member of the LLC. A bank account is established by the LLC and funded with cash from the self-directed IRA. Sounds simple right here, however, it is highly recommended that you consult your tax advisor and/or a knowledgeable financial professional to help you navigate the process.
Once you’re set up, you’re ready to begin investing and can score desired assets with the simple stroke of a check.