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Checkbook IRA vs. Real Estate IRA

Checkbook IRA vs Real Estate IRA

They are called self-directed IRAs for a reason, because YOU control where to move your money and what to invest it in. There are many different investment possibilities, two of which include “checkbook IRAs” and “Real Estate IRAs”. The direction you decide to go is completely up to you! Most people don’t even realize that they can invest their retirement accounts in real estate, but the Internal Revenue Service Code states that as long as you aren’t benefiting directly, you are more than welcome to do so!

There are two main ways to proceed with investing in real estate. The first is to purchase the real estate directly through your IRA. Therefore, title of buyer would read: “Midland Trust, LLC FBO “Client Name” IRA #XXXXX”. Going this route would mean that your IRA Administrator would be signing all legal documents including the closing documents and funds due at closing would come directly from your IRA account. Also, all expenses would have to be paid directly by the IRA so for example, when the electric bill is due, you would submit a payment authorization request to have a check cut and mailed out to the utility company.

The alternative is to set up a checkbook control LLC which you would then use to purchase real estate. Under the checkbook format, the IRA would be set up as a self-directed account and would then be invested in the LLC. The title of buyer would then be your LLC name (John Smith IRA LLC) and you would be the manager of the LLC and thus have the authority to sign all documents. You would also have a checking account set up in the name of the LLC and have a checkbook to be able to write checks for any expenses associated with the LLC owned properties. When it comes time for a closing, you would simply wire the funds out of the LLC checking account. The speed at which you can act on investment opportunities is one of the main benefits of having the checkbook LLC. Since you are able to sign documents and send funds as the manager, there is no need to have to wait on an administrator to sign or have the file processed to send out funds. This also makes it easier when purchasing tax liens or foreclosures or any other type of transaction that requires you to act fast. And when it comes time to pay a bill, you don’t have to submit a payment request and pay the check fee; rather you just cut a check right out of the LLC checking account!

Both routes allow you to invest in what you know best, real estate! It is just a matter of personal preference as to which way you decide to go. Checkbook IRAs are great for individuals who are well aware of the rules and who like to have complete control over their investments. It also helps to cut down on fees from the IRA Administrator. There is a charge to set up the LLC but, depending on your investment strategy, it can end up saving you a lot more in fees in the long run.

Ultimately the decision is yours! If you would like more information, please feel free to contact us!

**MIDLAND TRUST IS NOT A FIDUCIARY: Midland’s role as the administrator of self-directed retirement accounts is non-discretionary and/or administrative in nature. The Account holder or his/her authorized representative must direct all investment transactions and choose the investment(s) for the account. Midland Trust has no responsibility or involvement in selecting or evaluating any investment. Nothing contained herein shall be construed as investment, legal, tax or financial advice or as a guarantee, endorsement, or certification of any investments.