IRA Trust: What It Is, How It Works, Benefits, & Setup Guide

Written By: Daniel Gleich, Board Member and Shareholder

Madison Trust is an investor-first Self-Directed IRA custodian offering flat, predictable fees and live guided support for alternative investments.  

What Is an IRA Trust

An IRA Trust, also known as a Checkbook IRA, is a grantor trust established for the benefit of a Self-Directed IRA (SDIRA). This structure provides Checkbook Control, allowing eligible investors to execute investment-related transactions directly from a dedicated checking account instead of submitting each transaction to your IRA custodian for processing. This structure combines the tax-advantages of a Self-Directed IRA with added flexibility for investors interested in alternative assets. This structure combines the tax-advantages of a Self-Directed IRA with added flexibility for investors interested in alternative assets.  

How Does an IRA Trust Work

An IRA Trust combines two parts: 

• A Self-Directed IRA held by a regulated IRA custodian   

• A grantor trust owned by the IRA 

Once the Trust is established and funded by the IRA, the IRA owner typically serves as the trustee of the Trust allowing you to execute investment transactions directly from the trust checking account by simply writing a check or sending a wire. This process is known as checkbook control. 

While the IRA owner manages the Trust, all investments remain owned by the retirement account and continue to grow tax-deferred or tax-free depending on your account type.  

Who Is an IRA Trust Right For?

An IRA Trust may be a good fit for investors who:  

• Are seeking greater control over their retirement investing  

• Invest frequently or have transaction heavy investments 

• Prefer confidential investing as trust documents are not publicly available  

• Looking for ways to reduce transaction fees  

What Is the Difference Between an IRA LLC vs IRA Trust?

While both an IRA LLC and IRA Trust enable you to direct your own IRA investments, differences between an IRA LLC vs. IRA Trust include setup time, setup costs, filing requirements, and confidentiality status to name a few.

What Are the Benefits of an IRA Trust?

Many investors choose an IRA Trust because it provides greater flexibility when managing IRA investments. Potential benefits include:  

Checkbook Control

An IRA Trust allows you to execute investment transactions directly within the trust checking account without needing to involve your Self-Directed IRA custodian.  

Streamlined Transactions

An IRA Trust enables you to make investment decisions in real time, eliminating processing times and reducing transaction delays.  

Confidential Investing

Unlike an IRA LLC, which requires you to file Articles of Organization that are publicly available in your state, an IRA Trust requires no public records. This allows you to invest in all 50 states without additional filing requirements.  

Lower Transaction Fees

As investment transactions are handled directly through your IRA Trust checking account, you avoid many investment transaction fees associated with custodian-managed Self-Directed IRAs, helping reduce administrative costs. 

What Investments Can an IRA Trust Hold?

An IRA Trust can be used to invest in many alternative assets including:  

• Real Estate 

• Private Lending  

• Private Equity 

• Precious Metals 

• Cryptocurrency  

• Startups 

• And more! 

Are There Rules and Considerations for Investing with an IRA Trust?

Yes, while an IRA Trust provides greater flexibility, there are several rules and considerations to understand.

Navigating Prohibited Transactions

IRA Trust investments must comply with IRS prohibited transactions rules which outline who your IRA can transact with and ensure IRA assets are used solely for the benefit of the IRA. IRA Trust assets cannot be used for the personal benefit of the IRA owner or other disqualified persons.  

Maintaining Proper Record Keeping and Annual Valuations

As the trustee of the IRA Trust, it is the account holder’s responsibility to keep accurate records including all investment activity, income and expenses. Likewise, it is the account holder's responsibility to provide the fair market value (monetary value) of the IRA Trust each year to their IRA custodian, even if no changes occur.  

Understanding Tax Considerations

While most profits with an IRA typically grow tax-advantaged, certain investments may generate UBIT or UDFI. Unrelated Business Income Tax (UBIT) may apply if you invest in an active business, as defined by the IRS.  Unrelated Debt Financed Income (UDFI) may occur when your IRA borrows money to purchase an alternative asset. The net profits earned from the borrowed portion are considered UDFI and may be subject to UDFI tax. It is considered best practice to consult with a qualified tax or financial professional to determine if and how these rules may apply to your investment.     

Ensuring Proper Movement of Money

An IRA Trust provides Checkbook Control which allows you to complete investment transactions directly within your Trust checking account. However, non-investment transactions must be completed with your IRA custodian to ensure proper record keeping and reporting. This includes IRA transfers, roll overs, distributions, and contributions. It is considered best practice to speak with your IRA custodian if you have questions regarding moving money. 

How to Set Up an IRA Trust

Setting up an IRA Trust is easy with our four-step process:

1. Open and Fund a Self-Directed IRA

First, you will open a Self-Directed IRA by completing our easy online application. Then, you will fund your Self-Directed IRA by transferring or rolling over funds from a previous retirement account, such as an IRA or 401(k), or by making an initial contribution. 

2. Establish a Trust for Your IRA

Next, you’ll work with our sister company, Broad Financial, who will create a specialized, IRS-compliant Trust for your Self-Directed IRA, handling all necessary paperwork. 

3. Open a Trust Checking Account and Fund the Trust

Once your IRA Trust is created, you will set up a designated checking account at a bank of your choice for your new trust.  

 You'll then instruct Madison Trust to send your IRA funds directly to your IRA Trust checking account.  

4. Invest in Alternative Assets

Once the funds are in your newly established checking account, you can begin investing  by simply writing a check or sending a wire directly to your investment. 

Why Choose Madison Trust for Your IRA Trust?

Madison Trust together with our sister company, Broad Financial, has created a one-stop-shop for Checkbook IRAs. Our seamless integration of opening a Self-Directed IRA and creating IRS-compliant trust documents makes gaining Checkbook Control simple.  

When you setup your IRA Trust with Madison Trust you benefit from: 

Customized Trust Formation: We establish your customized Trust and prepare an IRS-compliant trust agreement.  

Flat-Rate Fee Structure: Our straightforward fee structure includes a flat quarterly fee that remains the same regardless of your account value. 

Responsive Support: Our SDIRA Specialists are available to assist with your account setup and provide ongoing administrative support throughout the life of your account.