Adam Bergman

Founder, Tax Lawyer, Author

A checkbook control IRA is a Self-Directed IRA that owns a limited liability company, with you serving as the LLC’s manager. Instead of asking a custodian to approve and process every investment, you write a check or send a wire from the LLC’s bank account yourself. I’ve been setting up these structures since 2010, and for investors in real estate and other alternative assets, the speed and control they offer can make the difference between closing a deal and losing it. That control also puts the responsibility for following the IRS rules squarely on you.

How a Checkbook Control IRA Works

A traditional Self-Directed IRA is held by a custodian, and the custodian has to review, sign, and fund every investment you make. That works, but it can be slow, especially when a seller wants earnest money today or a private deal closes on a tight deadline. Each transaction can also come with its own custodial fee.

A checkbook control IRA adds one layer. Your Self-Directed IRA, held with a passive custodian, invests in a newly formed LLC. The IRA is the LLC’s sole member, and you are its manager. The LLC opens a business checking account at a local bank, and once the IRA funds the LLC, you can make investments directly from that account. Rental income, interest, dividends, and sale proceeds flow back into the LLC’s account, where they continue to grow tax-deferred, or tax-free in a Roth IRA.

The legal foundation for the structure goes back to Swanson v. Commissioner, 106 T.C. 76 (1996). In that case, the IRS argued that an IRA’s investment in a newly formed company owned by the IRA was a prohibited transaction. The Tax Court disagreed and found that a newly formed entity with no other owners isn’t a disqualified person when the IRA makes its initial investment. That reasoning is why an IRA can form and fund its own LLC today.

Benefits of a Checkbook Control IRA

Speed. You can make an investment the moment you decide to, without waiting days for a custodian to review the documents. In competitive real estate markets, that matters.

Control. You sign the contracts, pay the bills, and deposit the income. No one at a custodian has to sign off on a repair invoice or a property tax payment.

Lower transaction costs. Many custodians charge fees for each transaction, each asset held, or a percentage of account value. With the LLC handling day-to-day activity, those per-transaction fees largely go away.

Diversification. You can invest in assets most brokerage firms won’t touch, and move between them as opportunities come up.

Privacy. Investments are made in the LLC’s name, not in a custodian’s name for the benefit of your IRA.

What You Can Invest In With a Checkbook Control IRA

The IRS doesn’t publish a list of approved IRA investments. It lists what’s prohibited, which is mainly life insurance and most collectibles, and everything else is generally allowed. With a checkbook control IRA, that can include:

• Real estate, including residential, commercial, and raw land
• Private businesses and private placements
• Tax liens and tax deeds
• Hard money loans and private mortgages
• Gold and other IRS-approved precious metals
• Cryptocurrency
• Foreign currency, commercial paper, and promissory notes
• Livestock and farming operations (I’ve had clients invest in alpaca farms)
• Publicly traded stocks, ETFs, and mutual funds

Most large brokerage firms limit IRA investors to stocks, bonds, and funds because that’s what they sell. The rules themselves are much broader.

How to Set Up a Checkbook Control IRA

1. Open a Self-Directed IRA. The account is held with a passive custodian. You can use a traditional IRA, a Roth IRA, or a SEP IRA.
2. Fund the account. Move money in through a transfer from another IRA, a rollover from a former employer’s plan, or an annual contribution. A direct transfer or rollover is tax-free.
3. Form the LLC. The LLC is formed with an operating agreement written for IRA ownership, which names the IRA as the member and you as the manager. The LLC also gets its own EIN.
4. Open the LLC bank account. The account is opened in the LLC’s name at a bank of your choosing.
5. Fund the LLC. At your direction, the custodian invests some or all of your IRA funds into the LLC in exchange for 100% of its membership interest.
6. Invest. As manager, you make investments directly from the LLC’s account, and all income and gains return to that account.

At IRA Financial, our team handles the full setup, including the LLC formation, EIN, and operating agreement. Most accounts open within one to three business days after we receive your documents, and the full process, including funding and your first investment, usually takes about three to four weeks, depending on how long the incoming transfer takes.

What a Checkbook Control IRA Costs

At IRA Financial, a Checkbook IRA costs $999 to set up, which covers the LLC formation, EIN, and operating agreement, and then $495 a year. There are no fees based on how much your account holds or how many transactions you make. You’ll also pay your state’s LLC filing fee and any annual state LLC fees, which vary by state.

I built IRA Financial around a flat fee because I’ve never understood why an IRA owner should pay more just because their real estate went up in value. With a checkbook control IRA, your costs stay the same whether the account holds $50,000 or $5 million.

Your Responsibilities as LLC Manager

The control that makes this structure valuable also means no custodian is double-checking your transactions. The IRS prohibited transaction rules under Internal Revenue Code Section 4975 apply to everything the LLC does. As manager, you can’t:

• Buy property from, sell property to, or lend money to yourself, your spouse, your parents, your children and grandchildren, or entities they control
• Use any LLC-owned asset personally, including vacation properties
• Pay yourself a salary or fee for managing the LLC or working on its investments
• Personally guarantee a loan for the LLC
• Mix personal funds with LLC funds, or pay LLC expenses from your own account

A prohibited transaction can disqualify the entire IRA as of January 1 of the year it happened, which makes the full balance taxable. In Ellis v. Commissioner, 787 F.3d 1213 (8th Cir. 2015), an investor used an IRA-owned LLC to buy a used car business and then had the business pay him a salary. The court didn’t question the LLC structure itself. The problem was the salary, and it cost him his entire IRA. I cover more of these rulings in my summary of landmark prohibited transaction cases.

Good recordkeeping is part of the job. Keep a separate ledger for the LLC, save every invoice and closing statement, and send your custodian an updated value of the LLC’s assets each year so it can report the account’s fair market value on Form 5498.

Is a Checkbook Control IRA Right for You?

A checkbook control IRA makes the most sense if you plan to invest in real estate, make several alternative investments a year, or need to act quickly on deals. If you only plan to make one passive investment, such as a single private fund, a standard Self-Directed IRA may be all you need. If you’re self-employed with no full-time employees, a Solo 401(k) with checkbook control offers the same control plus higher contribution limits and an exemption from UDFI on leveraged real estate.

Final Thoughts

A checkbook control IRA gives you the freedom to invest your retirement funds the way you’d invest your own money, quickly and in the assets you know best. It’s been on solid legal ground since the Swanson decision, and thousands of investors use it to buy real estate, lend money, and back private companies. It also asks more of you than a traditional IRA does. If you understand the prohibited transaction rules and keep clean records, the structure lets you take full ownership of your retirement investing.

This content is for educational purposes only and does not constitute legal, tax, or investment advice. Consult a qualified professional before making any investment decisions.