What is a checkbook IRA?

by Yieldstreet | Staff

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Checkbook IRAs provide the IRA owner with control over the entity created by the IRA. Typically, checkbook IRAs form either an LLC, Trust, or Corporation that has a bank account. If the IRA owner then instructs their custodian to purchase 100% of the interest in the LLC, Trust or Corporation, they can be appointed as the controller of the entity and its bank account, effectively giving them checkbook control over the IRA. Here, we take a closer look at how checkbook control of IRAs works. 

Video Transcript:

Hi I’m Joe, Founder of WealthFlex. Let’s talk about checkbook IRAs and how they work. 

Checkbook control IRAs have gained a lot of popularity in recent years. This literally means that you can control the checkbook of a bank account that holds your IRA’s cash.  When you create an IRA account, you can set it up to own and control an entity. 

This can either be an LLC, Trust, or Corporation that has a bank account. You are able to instruct your IRA custodian to purchase 100% of the interest in this new entity. You can then be appointed by your IRA to control the entity, and its bank accounts directly.

The entity must be a new entity created for this purpose.  It can’t be an entity that you have already used in the past.  If you’re already the owner of an entity, your IRA can’t buy it from you. 

This is at the crux of checkbook control in IRAs because this very thing has been tested in tax court. The most prominent case was of Swanson v. Commissioner in 1996. 

The Tax Court held that initial formation of the company by the IRA is not a prohibited transaction under Internal Revenue Code Section 4975 because the sale of stock to the IRA was not a sale or exchange of property between a plan (the IRA) and a disqualified person within the meaning of Code Section 4975(c)(1)(A).  

Now, just because you control the checkbook to an entity that holds your IRA’s cash, it doesn’t mean you can ignore the customary constraints of IRAs. Yieldstreet’s IRA offers checkbook control through Yieldstreet Wallet. 

You might want to check out our video on, “What you can and can’t do with your IRA” before you create your checkbook control IRA, and definitely be sure you have the proper controls in place before you start making transactions.

Learn more about how you can take retirement planning to the next level with a Yieldstreet IRA. Contact us at [email protected] with any questions.

Please note that the numbers used here are for illustrative purposes only. Yieldstreet cannot provide tax advice, so please consult a tax professional for advice specific to your situation. 

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Published:

05/20/2020

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