- Where can I get more information?
The concepts presented in this workshop have been written about in many different professional
journals. In particular: The Journal of Taxation, the Journal of New York CPAs, and Trusts and Estates
magazine. If you tax advisor says this cannot be done, you may want to refer him to one of these
resources commonly used by tax attorneys and CPAs. Furthermore, recently the Department of Labor
came out with a ruling specifically allowing an IRA to invest in a partnership of which the IRAs owner and
family were already partners. While the ruling establishes no legal precedent, it is insightful into the
thinking of the government.
What is a Self-Directed IRA Custodian?
A self-directed IRA custodian is approved by the IRS but you are allowed to direct the investments of
the IRA. Many custodians claim that they allow you to self-direct your IRA investments but then only let
you invest in to what they offer. A truly self-directed IRA allows you to make the decisions without
restriction.
What is a Check Book IRA?
It is a step further towards putting you in full control of your IRA. You don't have to go to your custodian
to get approval of the investment and get a check written. You truly have a self-directed IRA because
you have checkbook control as the manager of your IRA owned special LLC.
What can I invest in if I have a Check Book IRA?
Your IRA-LLC can make any investment a regular LLC can invest in as long as you stay away from
Insurance contracts and collectibles. Also you may not have any “self dealings” without a DOL
exemption.
- Wouldn’t you love to have the option to invest your IRA in:
Residential Real Estate Commercial Real Estate
Raw Land Trust Deeds / Mortgages
Private Notes and Loans Private Stock Offerings
Limited Liability Companies (LLC) Limited Partnerships (LPs)
Tax Certificates Receivables
Stocks, Bonds, Mutual Funds Annuities
Options Currency
Futures Commercial Paper
IPO’s And MANY other investments!
Auto loans/paper
What types of retirement accounts can be moved into Check Book IRA accounts?
Traditional IRAs Sep IRAs
Roth IRAs 401(k)s
403(b)s Keoghs
Qualified Annuities Profit Sharing Plans
Government Eligible Deferred Compensation Plans
Coverdell Education Savings (ESA)
Money Purchase Plans
Is this new?
No. These investments have been allowed by the IRS for 30 years.
Why haven’t I heard of this before?
Who would tell you? Your stock broker? They will only let you invest your IRA in investments that their
firm offers. At a bank you may be limited to CDs while at a brokerage firm you will be limited to stocks,
bonds and mutual funds. As a consequence, and unfortunately for many investors, it has been a well
kept secret that they have other options for their IRAs. The traditional investment community has had
control of over 97% percent of retirement accounts, and they have been making a great living off your
accounts. Why would they want to let you know of alternatives that they wouldn’t benefit from?
As investors have become more disillusioned and frustrated with traditional investment choices, they
have begun looking for alternatives. After the steep stock market decline, corporate scandals and
corruption (e.g. Enron, ImClone, Worldcom) and many investors seeing their retirement accounts cut in
half, they are ready to take control of their own investments. They often want more tangible investments
such as Real Estate.
However, when they ask their current custodians / brokers, they are typically told that such investments
are illegal, too complicated or that it can’t be done. But those are ignorant and self-serving responses.
Although those custodians / brokers may not allow it, it can be done. It is just likely you can’t do it
through your current custodian. They would financially suffer if you make a move so they aren’t going
to tell you about it.
Why is there so little information available on Self-Directed IRA options?
Who would educate you? Your stock broker? They will only let you invest your IRA in investments that
their firm offers. The traditional investment community has control and is making money on over 97%
of the retirement accounts.
How are custodians different from each other?
The government allows certain institutions to handle the accounting and reporting of IRAs. Under the
law, all custodians can allow you to invest your IRA in the same types of investments (stocks, bonds,
real estate, notes, tax liens, etc.). However, the majority of custodians have made the decision to
restrict the types of investments you can make. This is not based upon law, but it is based upon what
the custodian wants to offer. However, there are a handful of custodians, called “Self Directing” who
allow non-traditional investments.
Do I get complete control?
Having a self-directed IRA custodian is one step toward obtaining complete control. When an account is
established with a self-directed custodian, you are still required to get permission from the custodian
before making each investment. This is time consuming, cumbersome and more expensive than it
needs to be. To obtain a truly self-directed retirement account you need the CHECK BOOK IRA LLC.
This is the structure that gives you checkbook control.
With the CHECK BOOK IRA LLC your IRA makes one investment, it owns the LLC. After that it is the
LLC that makes all the investments with the tax liability flowing through to the owners - the IRA.
However the profits stay in the LLC where the full untaxed amount is ready for reinvesting. Now you
are able to make investments the minute you decide to without getting permission from anyone. You
have the checkbook. You are in control of your retirement money.
How do I know that this is legal?
This is a question that is frequently asked by investors who have never heard that they could invest in
anything other than stocks and bonds. However, we’ve shown you that Real Estate has been an
allowed investment since the day IRAs were created almost thirty years ago. Remember the IRS makes
the following statement on their website “…..because of administrative burdens, many IRA trustees do
not allow IRA owners to invest IRA funds in real estate. IRA law does not prohibit investing in real estate
but trustees are not required to offer real estate as an option.” (Emphasis added)
Find out for yourself by going to the Internal Revenue Service’s website . Request Publication 590. On
pages 40-41 you will see what investments are not allowed (see below – collectibles, life insurance, s-
corporation stock, etc.). Real Estate is NOT mentioned as a disallowed investment just like stocks,
bonds, mutual funds are not mentioned as a disallowed investment. Also you can look up “Swanson vs.
The Commissioner”. Visit our
Can I use funds from a 401K, IRA, Sep IRA, Roth IRA, or 403b with Check book control?
Yes. You can self direct all of these types of accounts. They can all be invested into the CHECK BOOK
IRA LLC for truly self-directed investing.
Can my IRA purchase Real Estate I already own?
No. This would be considered a prohibited transaction (see IRC 4975). You many not purchase
property which is currently owned by you or any other disqualified person (see below). You would need
to find another piece of Real Estate that you don’t already own to purchase unless you filed for an
exemption.
If I buy an income producing rental property, who gets the rental income?
The income goes back into the CHECK BOOK IRA LLC, and you retain the tax deferred or tax free
status (in the case of the Roth IRA) of the investment.
Can I use leverage in buying real estate?
Yes you can use your IRA money as the down payment and then have your CHECK BOOK IRA LLC get
a loan for the balance. However, you will not be able to personally guarantee the loan. It must be a non-
recourse type of loan which means that if your IRA fails to make payments, the only recourse the lender
has is against the property itself. Further, there will be tax ramifications to doing so; UDFI (unrelated
debt financed income) tax applies when a loan is obtained. That means what ever percentage was
borrowed then that same percentage of any profits is taxed in your IRA. You would want to confer with
your tax professional about what forms would be necessary.
My IRA is small. Can I personally co-invest with my IRA?
It is not a prohibited transaction for you to co-invest with your IRA. However, there are certain
formalities that need to be adhered to, and there are some situations where it isn’t advised. Check out
page 17 “Super Charge you Roth”
Can my IRA co-invest with friends?
Yes. IRAs may purchase an undivided (and proportionate) interest in Real Estate.
Can I be the property manager of the Real Estate?
That depends. With just a self-directed IRA the answer is no. In fact you can’t even change a light bulb
on the property. But with the CHECK BOOK IRA LLC you have the ability to manage the property,
collect the rent and pay the bills. Unlike just having a self-directed IRA which put restrictions on what
you can do, the CHECK BOOK IRA LLC structure allows you to perform maintenance on the property,
advertise for renters, collect and deposit the rent checks, pay the real estate bills, etc. This saves your
IRA a lot of money and helps provide a more comfortable and prosperous retirement for you.
May I use my IRA funds to make improvements or renovations?
Yes. In fact, you must use IRA funds to make the improvements and pay all expenses associated with
the property. All expenses of the property are paid with IRA funds, and all profits made on the property
are returned to the IRA. This makes sense because it is an investment of the IRA.
Can I buy vacation property?
Yes. Doing so would not constitute a prohibited transaction. However, you cannot vacation there.
Can I buy my dream retirement home with my IRA and then live in it when I reach the age of
retirement?
Yes. Your IRA would be the original owner. You would use your IRA money to make the purchase and
maintain the property. Any rents generated would be returned to the IRA. However, upon reaching
retirement age, the property could be distributed out to you. Of course, you would have to pay taxes at
that point but without penalty.
What are the advantages to using an CHECK BOOK IRA LLC when investing my IRA in Real
Estate?
You can only receive true checkbook control with the CHECK BOOK IRA LLC. With a self-directed
custodian, you get more control than you get with a traditional custodian, but you still have to get
permission from the custodian for every little thing you do. This is problematic, unnecessary and
annoying. Further, with any time sensitive investment it puts you at a huge disadvantage. And what
Real Estate deals aren’t time sensitive. If you don’t move quickly, you will miss out on the best deals.
And think of tax liens, tax deeds and foreclosures sold on the courthouse steps; you need to have
checkbook control or you miss out. With the CHECK BOOK IRA LLC you have the checkbook, authority
to write the checks and can make an investment without time delays. This ensures that your IRA is able
to make the best investments at the best prices.
With the CHECK BOOK IRA LLC your IRA will be subject to fewer and lower fees from the custodian.
Thus, there is more money for your retirement, which is the whole goal of an IRA.
You obtain the ability to manage the property, collect the rent and pay the bills. Unlike just having a self-
directed IRA which put restrictions on what you can do, the CHECK BOOK IRA LLC structure allows you
to perform maintenance on the property, advertise for renters, collect and deposit the rent checks, pay
the real estate bills, etc. This save your IRA a lot of money and helps provide a more comfortable and
prosperous retirement for you.
Can my CHECK BOOK IRA LLC make loans to other individuals who want to buy Real Estate?
Absolutely as long as they aren’t “disqualified persons” . This is done frequently, and is a great
investment for your IRA because the property is the collateral.
Can I make a loan to my brother, aunt, cousin or stepchild so that they can use the money as
a down payment on a home?
Yes. According to IRC 4975, siblings, aunts, uncles, cousin and “step relations” are not included in the
definition of disqualified persons. Thus any dealings between your IRA and these would not be a
prohibited transaction. To deal with your children, grandchildren, spouse or parents you would need
an exemption.
Can my CHECK BOOK IRA LLC make loans to a friend?
Absolutely. Friends are not disqualified persons under the Code, and therefore, your IRA can make a
loan to them for any purpose whatsoever (boat, airplane, hot tub, home improvements, etc.). Of course,
you want to make sure that there are proper formalities and reasonable terms to the loan. It is your
retirement.
Can my CHECK BOOK IRA LLC make loans to a Real Estate developer?
Yes. Your IRA can loan money to a Real Estate developer to finance the purchase of property or the
development of property. Developers often look for private financing so it is a great way to get your IRA
involved in Real Estate development. And because developers often pay an above market interest rate,
the loan can be a great investment for your IRA.
Can my CHECK BOOK IRA LLC make loans to businesses or companies?
Sure. Your IRA can make a loan to any type of business. However, be aware that there are some
restrictions on loaning money to any business that you or any other disqualified person has an
ownership interest in. If a disqualified person or persons have part ownership it must be less a total of
50%.
For example if you and your brother had a company and you owned 49.5% then your IRA could buy,
sell or loan to it without penalty.
Are the gains that my CHECK BOOK IRA LLC makes taxable?
Not in most cases. If an IRA buys a piece of property and then sells it at a profit, the gains stay within
the IRA. If you have a traditional IRA, the gains are tax-deferred. If you have a Roth IRA, the gains are
tax free. Note, you alter that result if you use leverage through borrowing. If you borrow 1/3 of the
money then 1/3 of the profits are taxed.
Can I invest outside of my state or outside the country?
Yes! Your IRA can invest outside of the U.S.A. There are many great investment opportunities in other
countries. Remember it’s the LLC doing the investment so anything an LLC can invest in so can your
IRA as long as it’s not a prohibited transaction or one with disqualified persons or companies.
What are Prohibited Transactions?
Understanding what constitutes a prohibited transaction is very important when it comes to making
investments within your IRA. The IRS defines a prohibited transaction as follows:
“Generally a prohibited transaction is any improper use of your IRA account or annuity by you, your
beneficiary or any disqualified person. Disqualified persons include your fiduciary and members or your
family (spouse, ancestor, linear descendant, and any spouse of linear descendant).” IRS Publication
590
IRC 4975 is the section that lays out the rules on prohibited transactions. Prohibited transactions
generally involve one of the following:
- (1) doing business with a disqualified person;
(2) benefiting someone other than the IRA;
(3) loaning money to a disqualified person; or
(4) investing in a prohibited investment.
In plain English, prohibited transactions are those transactions that violate the basic intent of the IRA.
Your IRA must benefit rather than benefiting you personally. In other words, there can be no “self
dealing” transactions. However, there are many ways in which you can invest your IRA and not be in
violation of the prohibited transaction law. And when your IRA benefits, you benefit because it is for
your retirement.
Are there investments that are prohibited?
Yes, but you probably aren’t investing in them anyway. The Internal Revenue Code does not
specifically authorize investments within an IRA; rather, the code outlines what types of investments are
not allowed. The Prohibited Investments include:
Artwork Rugs
Antiques Metals
Gems Stamps
Coins Alcoholic Beverages
Life Insurance Contracts Stock in a S-Corporation
And certain other tangible personal property
Who is a disqualified person?
the IRA holder and his or her spouse;
the IRA holders ancestors, lineal descendants and their spouses;
investment advisors and managers
any corporation, partnership, trust or estate in which a disqualified person has 50% or greater
interest; and
anyone providing services to the IRA such as a trustee or custodian.
What are some types and examples of Prohibited Transactions and / or Self-Dealing
Transactions?
Self dealing with a family member (your IRA purchases a home from your father).
Self dealing with yourself (your IRA purchases a home from yourself).
Personal use of IRA property (buying a rental vacation home with IRA money and then staying in the
home when on vacation).
Receiving personal benefit from your IRA (paying yourself for work that you do on the property such
as repairing the roof).
What are Exemptions?
Exemptions are permission to invest in something or in some way that is technically a prohibited
transaction. For example, it is a prohibited transaction to rent property owned by your IRA to your child.
An exemption would allow you to do so. The Exemption sections begins by saying:
The Secretary shall establish an exemption procedure for purposes of this subsection.
This provision goes on to say that the IRS shall coordinate the requests with the Department of Labor.
In reality, all power to grant these exemptions has been shifted over to the Department of Labor.
Is it likely that your exemption will be granted? Yes it is. While most tax advisors are not aware of this
section, the Department of Labor grants hundreds of these exemptions each and every year. One giant
size exemption is provision 96-62. This exemption is amazing. It’s called a “class exemption” and it
basically states that if two transactions “substantially similar” to yours have been approved in the last
five years yours will too.
These exemptions have allowed people to access their IRA money early, without paying any taxes,
including penalty taxes, and the their actions had the full blessing of the government! In some cases
they had their IRAs own their home mortgages or helped them buy a business. I bet your stockbroker
never told you about these scenarios.
What are some of the other Prohibited Transaction Exemptions that have been granted over the years..
1. The owner of the IRA was allowed to sell real estate to their IRA. Remember the prohibited
transaction for sales of assets between the IRA and the IRA owner? This is a direct violation of that,
and yet was allowed by the DOL. Since it has been allowed more than twice in the last 5 years it meets
the requirements of exemption 96-62.
2. The IRA owner was allowed to sell stock they owned to their IRA.
3. The IRA owner was allowed to purchase stock from their IRA.
4. The IRA owner was allowed to purchase real estate from their IRA.
5. This one is great. Not only was the owner allowed to purchase real estate from their IRA, they were
allowed to have their IRA carry back the mortgage on the property. This one was even written up in
Forbes magazine!
6. Hate paying interest to the bank? In this exemption, the IRA owner was allowed to have their IRA
purchase the mortgage on their home. Now instead of having to write a check out to the bank each
month, they write a check to their own IRA! Even though the interest is flowing into the IRA tax free, they
still get the home interest deduction.
Another great aspect of this Prohibited Transaction Exemption is ASSET
PROTECTION. Since the IRA owns the mortgage that means that the
IRA also has a lien against the home. So now if somebody sues and wins
a lawsuit against the IRA owner, the chances of the person who won the
lawsuit collecting against the home is very minimal.
7. This is another incredible one! This was an exemption that allowed an individual to have his IRA loan
hundreds of thousand of dollars to his 100% owned corporation! Once again, the IRA loaned money to
a corporation 100% owned by the IRA owner. This individual was now able to access all that money in a
totally TAX FREE manner. There were a couple of other very large benefits with this as well. The loan
had to be paid back to the IRA, which of course generates interest. Since the loan was presumably for
business purposes the interest would be allowed as a deduction for income tax purposes!
Once again we get to the ASSET PROTECTION aspect. As a requirement to granting the exemption,
the DOL required that the pension plan have collateral for the loan. The IRA owner then pledged their
home and business assets as collateral for the loan. Just as with the prior exemption ruling, the
individual now has absolutely fantastic asset protection. If somebody were to win a lawsuit against them,
the lawsuit winner would be in second line behind the retirement plan for the ability to get the assets.
8. If you are a small business owner this exemption could save you thousands of dollars each year. In
this blanket exemption, the DOL said that businesses that sell tangible property via extensions of credit,
could have their retirement plans factor the accounts receivables. So if the normal discount for selling
off the accounts receivables early would be 10%, that would mean that the business would report 10%
less income each year. At the same time, that extra money would flow into the retirement plan in a
totally TAX-FREE manner.
The above is certainly not an exhaustive list of all the exemptions granted, or of
all the possible exemptions that could be granted.
Can I buy a business with my CHECK BOOK IRA LLC?
Yes you can buy a business with your IRA money via the CHECK BOOK IRA LLC. Please contact us for
details.
Can I invest in an existing business?
Yes. This can be done as the purchase of stock as a loan to the business.
What about S-Corporations?
S-Corporations do not allow IRAs as investors; they only allow individuals as investors. Therefore, it isn’
t so much that IRAs are prohibited from investing in S-Corporations rather that S-Corporations don’t
permit having an IRA as a shareholder. It is likely that the investment of the IRA would revoke the sub-s
status of the corporation.
Can I buy Stocks, CDs, Bonds, Options, etc.?
Yes. You can invest in any IRS permitted investment. That includes publicly traded stocks, CDs, mutual
funds, annuities, bonds, stock options, futures, etc. In fact, if you are an active swing trader or day
trader, you will be able to trade your IRA in a manner that your current broker does not allow you to
trade using the CHECK BOOK IRA LLC. For example, you probably have asked your broker if you can
buy or sell Options (Calls and Puts). Or maybe you would like to write Covered Calls or do Spreads and
have been told no. The CHECK BOOK IRA LLC allows you to trade your way. You can also participate
in IPOs. Remember it’s your LLC that opens the brokerage account. You can have as many as you
wish.
I have a 401K with an old employer. Can I move it into the CHECK BOOK IRA LLC?
Yes. You can move these 401K funds into the CHECK BOOK IRA LLC. You can start controlling this
money yourself rather than letting your old employer control your future. We will help you with this
process.
I have a 401K with my current employer. Can I move it into the CHECK BOOK IRA LLC?
The 401K plan documents will specify what you can do but most of the time you cannot move money
from a 401K plan if you are currently working for the company.
I have several IRAs and old 401Ks. Can I combine them?
Yes. The can all be combined and then invested into your CHECK BOOK IRA LLC so that your buying
power is maximized. The only restriction is on 401(k)s; is that you generally must no longer work for the
employer. You can usually combine multiple retirement accounts into one account. Or in the event that
they can’t be combined, such as the case of a traditional IRA and a Roth IRA, they can still be invested
into the same CHECK BOOK IRA LLC
What’s this all going to cost me?
A better question is what’s it going to save me. Recently we helped a client set up a real estate closing
so that the $10,000 profit went into a Check Book IRA. We had to hustle to finish the paperwork in time
but by doing so he saved 35% in taxes and had the entire $10,000 to reinvest as soon as the check
from the Title Company was in the account. A savings of $3,500 and he has control the rest of his life!
Call us today for pricing and start saving today.
Call Steve at Check Book IRA
541-420-6302
Or visit us at our Educational Website
WWW.CheckBookIRA.com
