Self-Directed IRAs Can Lead to Retirement Success—With the Right Guidance

Self-directed IRAs are an excellent option for retirement investments. They allow you to fund your retirement using assets you know a lot about, such as real estate. But self-directed IRAs, particularly ones with checkbook capabilities, are not for every investor.

Knowing the advantages and disadvantages of self-directed IRAs will help you make the best decision for your retirement investments.

So, should you invest in self-directed IRAs or in conventional IRAs? And what is the difference?

Before you decide, let’s go over the basics.


The only difference between an IRA and a self-directed IRA is what’s contained in the account. With an IRA, you can purchase assets like common stocks, bonds and mutual funds. A self-directed IRA allows you to invest in anything except life insurance and collectibles. (The IRS defines collectibles as artwork, rugs, antiques, gems, stamps, coins, alcoholic beverages, metals and coins, with some exceptions for certain kinds of bullion and certain coins.)

A conventional Roth IRA is the same as a self-directed Roth IRA, except you can use it to invest in real estate and other nonpublicly traded assets.

The rules are the same for conventional and self-directed IRAs. It’s what’s contained in the accounts that is different.

But just because the accounts are essentially the same and you invest in real estate, doesn’t mean that a self-directed IRA is the right option for you.


It takes more than just expertise in real estate investing to be successful with a self-directed IRA. You have to educate yourself on what the IRS will and will not allow, and you have to be actively involved with your investments.

A self-directed IRA gives you the freedom to purchase assets you’re an expert in, but with this freedom comes responsibility. If you are the type of person who likes to set it and forget it, then this strategy is not for you.

But you can be overly involved in your investments, too.

Checkbook self-directed IRAs are promoted as an option to give you more control and more flexibility, as well as cost savings, but can be dangerous in an inexperienced investor’s hands.

Any self-directed IRA can be turned into a checkbook self-directed IRA. Instead of relying on a custodian to manage your self-directed IRA account, you set up a limited liability company (LLC), preferably with the assistance of an attorney experienced in this area. As the owner, you will open a bank account for the LLC.

This is seen as an advantage when you invest in real estate. When you want to buy a property or pay a mortgage with a self-directed IRA, you have to go to your custodian and ask for a check. If you have a checkbook self-directed IRA, however, you simply write one yourself. And it’s free. With a self-directed IRA, your custodian would write a check for a fee.

Proponents argue that because they can write checks themselves, they can jump on deals that they might otherwise miss if they had to go to a custodian for funds.

However, it is rare that you would miss out on a deal. Real estate doesn’t move very fast.

Typically, when a Next Generation Trust Services client needs funds for a down payment, he or she can get a check the same day. You can see a property that morning and put a down payment on it by the end of the day.

After that, there may be several days of back and forth before you even sign a contract, and then it’s going to be weeks before you need to bring in the final amount.


But what if you want to buy at auction? Many counties and states allow you to deposit funds online before the auction, so the money is already there. For auctions that don’t have this capability, Next Generation Trust Services has provided clients with checks in various amounts, so they can pull out the check in the amount they need.

There are ways to get the benefits of a checkbook self-directed IRA without the pitfalls.

For example, some people see it as a way to avoid custodian fees, which can add up depending on how many checks need to be written each month. An efficient way around this is to pay a lump sum in advance. So, instead of paying a $5 fee every month for a year ($60) to have the custodian write 12 checks for HOA fees, you could request one check for the year and pay $5 once.

Another argument for checkbook self-directed IRAs is that they offer asset protection since the asset is held within an LLC. If you hold five properties in your self-directed IRA and are sued by the tenant in one, a judgment against you could result in the liquidation of all the assets in your retirement account.

To avoid this, you can structure your investments, using self-directed IRAs, in such a way that you would have similar protection. If you have three properties, you could put each one in a separate self-directed IRA and then set up a fourth self-directed IRA to hold your cash reserves. (Not to mention, you should have hazard and liability insurance anyway.)


So why should you think twice about setting up a checkbook self-directed IRA if you don’t already have experience with self-directed IRAs?

It’s very easy to make mistakes that could jeopardize the tax-exempt status of your account if you don’t have a custodian watching out for you. Most prohibited transactions take place in these LLC/checkbook accounts because people don’t realize they’re doing something they can’t do.

You can’t self-deal, meaning you can’t do business with your asset.

That vacation property you bought as an investment? You can’t stay there even if you pay full market rate.

Or, that Home Depot credit card you want to open for a renovation project? Your signature on the application is prohibited. By signing for the LLC, there are substantial penalties including a complete distribution of everything in the IRA.

These are common mistakes that can be avoided with the right guidance.

And they’re not the only mistakes you can make. Other downsides to the checkbook self-directed IRAs are the high costs of setup and maintenance, as well as the attention they garner from government agencies that pay close attention to these investments.

To make the most out of your self-directed IRA investments and to prevent common mistakes, get in touch with a qualified self-directed IRA custodian.

  • Jaime Raskulinecz

    Jaime Raskulinecz was inspired to start Next Generation Trust Services in 2004 due to her desire to make real estate investments within her retirement accounts but inability to find a company to help her make those transactions. A longtime real estate investor, she has worked full-time in the real estate industry since 1994 and is a certified property manager (CPM), a New Jersey licensed real estate broker and an active member of many national and statewide real estate organizations. In addition to leading Next Generation Trust Services, she is CEO and a principal of Rainbow Property Management, a real estate management firm that has earned the Accredited Management Organization (AMO) credential from the Institute of Real Estate Management. A recognized expert in the field of real estate investing within self-directed retirement plans, Raskulinecz has been interviewed frequently by and has contributed articles to prominent real estate and investment publications. She also has been honored by numerous publications and organizations for her work on behalf of women business owners and entrepreneurs. 973-533-1880

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