The checkbook IRA is an alternative type of retirement account that provides you with quite a bit of flexibility. With this type of account, you are not subject to the level of scrutiny that comes with other investments. Here are the basics of a checkbook IRA and how it works. 

Investment Restrictions

One of the big drawbacks to a traditional IRA is that you are limited in what you can invest in. The IRS says that you cannot invest in life insurance or collectibles. You can also not make any personal deals that benefit you, such as investing in a vacation house for your use. These laws are true of any IRA. And depending on whom you do business with, your options with a given IRA might be further limited.

For example, many investment companies that offer IRAs say that you can invest in only stocks, bonds, mutual funds or CDs. Although the law allows you to invest in other things, they want you to invest only in those main categories. The reason that they want you to focus on those investments is that they make a commission when you buy or sell them. If you use your money for real estate or something else that they do not deal with, they will not make any money. This problem faces many investors who wish to diversify their investments.

Checkbook IRA

The checkbook IRA is a retirement account that aims to solve this problem posed by other IRAs. The idea behind a checkbook IRA is that you can simply pull out a check and write it if you want to make an investment. There is no one looking over your shoulder, and there is no one to tell you that you cannot do something. 

With a checkbook IRA, you are in control of your own investments. You will still have to stay away from the basic categories that are prohibited for IRAs. However, anything else could be invested in. Things like the FOREX market or real estate are fair game with this system. You could invest in a partnership or a franchise. You could buy tax liens as an investment. Your options are many with this kind of investment account. You do not have to get anything approved by a custodian of your retirement account. This allows you to invest in things that you understand and are successful with.

Checkbook IRA Details

In order to make this system work, you have to start a limited liability company (LLC). You invest in the LLC with funds from your IRA. Then the LLC conducts business and makes investments with the money. Any profits that the LLC makes are then passed back into your IRA. This allows you to control your retirement account and potentially make a great return on your money through an LLC. 

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