Checkbook IRA LLC
A self directed IRA will allow you to invest in pretty much any type of investment. However, you can't simply write checks from your IRA. It has to go through a custodian. A checkbook IRA involves having a custodian setup an LLC company, invest your money into the LLC and then make you the manager, so you can take the money and use it to invest in whatever you want. Since you are the manager, you can write checks--which is where the term Checkbook IRA LLC comes from.
You can't use a checkbook IRA LLC to give yourself money. However it does allow you to invest in certain ways that you are unable to do with a typical self directed IRA. For example, with a self-directed IRA you can invest in real estate but you can't actually managed to real estate yourself. Your not even allowed to change a lightbulb for tenant. However with the checkbook IRA LLC you can manage the property. It does not appear that you can pay yourself a wage for these services, but you are able to advertise, make repairs, contact contractors, receive rent and do other services for the property.
There are certain types of investments that you cannot put your money into when using any type of IRA. These are called prohibited investments. They include:
- LIfe Insurance COntracts
- Alcoholic Beverages
- Stock in S-Corporation
There are some loopholes. The Department of Labor basically has permission to grant exemptions for particular types of transactions or particular types of investments. While you have to ask specific permission for exemptions there seems to be a great deal of latitude in what they will allow. This is because there is a rule called a class exemption. It means that if transactions have been approved that are similar to your request in the past five years your request must be approved as well.. These class exemptions have allowed people to loan money to another corporation that they own. The money had to be paid back with interest, but interest was income for the IRA and deductible to the Corporation. This gave a peculiar side benefit in terms of asset protection. The IRA needed some type of collateral for the loan. The person used their corporation and their home as collateral. This means if someone were to sue them and win a judgment against them they could file a lien against their home but it would be in the second position to the IRA.
There is also an exemption that allows businesses that sell things on credit to basically sell their accounts receivable to their checkbook IRA LLC. This allows the business to show a smaller profit while increasing the value of the checkbook IRA LLC.