3 Paths to Checkbook Control for Your Self-directed IRA of Solo 401(k)

Path 1 – IRA Checkbook Control

For an IRA account the path is through an IRA LLC.  You must have your IRA with a custodian (say Entrust, Pensco, Viking Bank as well as many others).  Once your IRA is funded through transfer or contributions, you direct the custodian (this is the self-directed part) to invest your IRA funds in an LLC.  Of course, this is not your daddy’s LLC, this is a special LLC designed especially for an IRA account.  There will be special language in the LLC to cover changes in custodians, disqualified transactions and other details specific to the IRA investor.  Remember that your IRA account, through your trustee custodian, is the member/owner of the LLC.  You can be the manager as long as you do not receive any compensation for doing so.

Once the LLC is set up you must go to your bank and open a business checking account to receive the funds from your trustee custodian’s investment in the LLC.

Path 2 – Solo 401(k) Plan Checkbook Control

Brokerage houses set up solo 401(k) plans.  But, if you want checkbook control, you will want to contact many of us that provide a prototype plan that allow you, the trustee and administrator of your own plan, to open a “trust” type checking account at your bank.   With this type of plan, there is no need to set up an LLC but sometimes our clients do invest in an LLC with other investors to pool funds for larger purchases or developments. 

Path 3 – Qualifying Employer Securities in a 401(k) Plan

When shopping for your solo 401(k), you need to ask if your plan will allow qualifying employer securities.  This allows you to form a C Corporation and invest in its stock through your plan.  This is best used in a case where you want to invest in a “trade or business” as opposed to “investments.”  It allows you to actually be employed in the business as well.  This strategy is not as useful for real estate investments because C Corporations do not pay lower tax rates for long term capital gains.