My suggestion – read this article and think twice. It’s really no surprise that someone interested in a self-directed IRA business would want to directly manage their IRA funds. After all, part of the lure of an SDIRA is that ability to take control of your financial destiny.
“Checkbook control” refers to setting up your self-directed IRA with an LLC as a single-member limited liability company. To some, they feel that they have more flexibility and control of their account. Some IRA owners are especially fond of this because they can directly manage IRA funds, hence the term “checkbook control.”
Advocates of checkbook control seem to gloss over a couple of things such as high initial fees to join the organization, the lack of protection that it offers, and increased risk of prohibited transactions. Before you opt for checkbook control, let’s dig a little deeper into the hype around this type of “advantage.”
Does Checkbook Control Really Save Money?
Proponents of checkbook control will tell you that you save money from all of the transactions fees that a self-directed IRA may entail. This would be true if it weren’t for the fact that the investor is required to pay an initial organizational fee that ranges anywhere from $3000-$5000. After they set up the single member LLC, there will also be some fees for ongoing support.
To save the most money, try to find a self-directed custodian that offers services with an annual fee. This is the best way to help ensure that you won’t be nickel and dimed by exorbitant fees.
Checkbook Control is Faster because It Cuts Out the Middleman
Hmmm, that sounds rather alluring. It also seems to raise some alarms. Since the IRS has set up the self-directed IRA so that it is required to have a custodian, this business of cutting out the middleman sounds like a recipe for disaster to me.
While having direct access to funds could be quicker, it may just be the quickest way to a disqualification for some participants. The passive custodian is there for a reason – to help screen and process the transactions in a timely manner.
Look for a self-directed business specialist that will process transactions within 24 hours and has an online management system if you are looking to save some time when you need to access funds.
Checkbook Control and Account Protection
Checkbook control may cut out the middleman, but it also cuts out your last line of defense. The IRA custodian serves a very important function. It is their job to question any directives that could land the IRA account in trouble by partaking in a prohibited transaction.