Self-Directed IRA with Checkbook Control

Using a Self-Directed IRA LLC or Trust With Checkbook Control

couple speaking with a financial advisor about their investment strategy
For most investors, a Self-Directed IRA is an optimal choice. It offers an economical setup and streamlined operations, and Madison Trust takes care of all of the paperwork. However, there are certain investing situations where a Self-Directed IRA LLC may be more beneficial. For investment assets that are transaction-heavy or require real-time funding, a Self-Directed IRA LLC with checkbook control is the better option. Checkbook control allows the account holder to make transactions without going through a custodian. This provides time-sensitive investing as well as the elimination of transaction fees. The two platforms that allow for checkbook control are an IRA LLC and an IRA Trust.

The Self-Directed IRA LLC

An IRA LLC provides the diversification of a Self-Directed IRA but with the benefit of real-time access to IRA funds. The tool that makes it possible is a designated IRA LLC checking account. Here's how the process works.

Open a Self-Directed IRA: First, investors establish a Self-Directed IRA with a Self-Directed IRA custodian such as Madison Trust Company. This is a quick process and should only take a few minutes.

Establish an LLC for Your IRA: An ERISA attorney or IRA LLC facilitator generally prepares the LLC paperwork. They will file Articles of Organization with the secretary of state's office and prepare a specialized Operating Agreement. The operating agreement includes provisions related to retirement plan restrictions as outlined in Internal Revenue Code sections 408 and 4975. The LLC member is titled as "Madison Trust Company custodian FBO [Your Name] [Madison Trust account #]" in the official paperwork. The non-compensated manager of the IRA LLC is generally the IRA account holder.

Open an IRA LLC Checking Account: The IRA account holder takes the IRA LLC paperwork to a bank of their choice and opens a business checking account.

Fund the IRA LLC: First, fund the Self-Directed IRA via a transfer, rollover, or initial contribution. Then, the Self-Directed IRA account holder instructs Madison Trust to send funds to the IRA LLC checking account.

Invest With the IRA LLC: The account holder, acting in the capacity of the non-compensated manager of the IRA LLC, uses the IRA LLC checkbook to make transactions. They can purchase investments in real-time, pay bills, and then deposit income back into the checking account.

Understanding the IRA LLC Structure

A source of confusion for some IRA LLC managers is understanding which transactions require the involvement of an IRA custodian and which transactions are handled directly within the IRA LLC. A rule of thumb is that IRS-reportable transactions must flow through Madison Trust and transactions that are investment-related can be done within the LLC checking account. Here's how this rule plays out.

IRA LLC Annual Valuation

IRA custodians must file Form 5498 annually for every IRA they hold. One of the purposes of the form is to provide the IRS with an updated value of each IRA. Madison Trust Company will reach out to account holders in January of each year to request the fair market value of their IRA. For IRA LLCs, account holders are generally not required to provide a breakdown of the type of investments held within their IRA LLC. Rather, a valuation of the combined cash and assets held in the IRA LLC is sufficient. For example, if the IRA LLC holds $10,000 cash in a checking account, owns a $50,000 piece of real estate, and is the holder of a note valued at $25,000, then the fair market value of the IRA LLC is reported as $85,000.

The Self-Directed IRA Trust

A Self-Directed IRA Trust is another option for a retirement account with checkbook control. A trust is an entity that can hold funds and permit active management within the confines of the trust. Like an IRA LLC, it can be set up with a checking account. However, an IRA Trust provides a number of additional benefits that are not offered by an IRA LLC.

Benefits of an IRA Trust

Fast Account Setup: An IRA Trust can be established in as little as one week. This is great for assets that have a short time window for acquisition.

Plan Economy: An IRA Trust has a lower setup fee than an IRA LLC. It also doesn't have to pay any of the state-specific annual LLC fees.

Less Reporting: Although an IRA Trust has to fill out the standard IRS forms associated with retirement accounts, it does not have any state reporting requirements.

Privacy: In a Self-Directed IRA LLC, the Articles of Organization are public record. With an IRA Trust, there is no state filing and no public record of the account holder.

Self-Directed IRA Trust v. IRA LLC

In most cases when an investor would like to acquire checkbook control, a Self-Directed IRA Trust will be the faster and more economical choice. However, there are a few situations where an IRA Trust is not indicated.

Real Estate That Needs a Non-Recourse Loan: The loan process can be easier with an IRA LLC.


State-Specific Regulations: There are a few states that do not encourage a trust owning property, and this can make the acquisition of property insurance difficult.

Multi-Member Accounts: If you want to set up your retirement account so that it can provide multi-member investing, an IRA LLC is the better choice. An IRA Trust cannot be a multi-member entity.

Liability Protection: An IRA LLC offers automatic protection for certain kinds of legal liability that an IRA Trust does not.

What Investments are a Checkbook IRA Best Suited for?

Checkbook IRAs is best suited for active investments that require multiple transactions. For example, a real estate rental property involves receiving rental income, paying maintenance fees and other expenses, and requires timely completion of contracts and closing documents.

A Self-Directed IRA with checkbook control allows the investor to make all of these transactions seamlessly through a designated checking account. Transactions can be made immediately and without any added fees. More examples of investments that work best with a Checkbook IRA are:

Real Estate Rental Property
Real Estate Short-Term Flip
Hard Money Loans
Cryptocurrency
And Many More

How To Set Up a Self-Directed IRA with Checkbook Control

Open an Account

Complete our simple online application.

Fund Your Account

Fund your account via transfer from an IRA, rollover from a 401(k), or a contribution.

Establish an IRA LLC or IRA Trust Bank Account

Work with our sister company, Broad Financial, who will create a specialized LLC or Trust for your IRA. You will set up and fund a designated checking account at the bank of your choice, giving you checkbook control.

Invest in Alternatives

Invest in the asset of your choice immediately by simply writing a check or sending a wire from your designated bank account.

Checkbook IRA FAQs

Do I still need a Custodian if I have a Checkbook IRA?

Yes! The IRS requires all retirement accounts to be held by a custodian. Custodians may include banks, trust companies, or any other entity approved by the IRS to act as an IRA custodian. A Checkbook IRA is under the umbrella of a Self-Directed IRA, which allows account holders to invest in alternative assets in a tax-advantaged account.

Should I open an IRA LLC or an IRA Trust?

Depending on your investments and retirement goals, you may choose to establish an IRA LLC or an IRA Trust. They both allow you to invest in alternative assets in real-time with no transaction fees, but each account type does have certain benefits. An IRA LLC lets you partake in multi-member investing and an IRA Trust does not have any state fees or reporting requirements.

Moving Forward with an IRA LLC or Trust

If you already have a specific asset in mind, then your next step should be to get educated. Speak with a Madison Trust Specialist and find out if an IRA LLC or IRA Trust will better serve your investing needs. Making the right decision now can save your account a tremendous amount in the long run.

Ready to start investing in your future?

Reach out to our team, and we’ll answer any questions you may have.
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Madison Trust Company 401 East 8th Street • Suite 200
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