Understanding Roles in a Checkbook IRA
A Checkbook IRA is a great tool for unlocking your retirement plan and taking control of your investments.
Whether deployed as an IRA LLC or IRA Trust, the point of the structure is to give you as the IRA account holder full authority to make the investments you choose.
There are several roles related to ownership, control, and inheritance that figure into the program. We get a lot of questions on these topics, and thought it would be good to outline how it all fits together.
Checkbook IRA LLC or Trust?
Safeguard plans provide checkbook control via the use of either an LLC or a trust that is owned by the IRA and controlled by the IRA account holder. There are advantages of each structure depending on your specific investment goals and geographic nexus.
At the core level, however, the plans are identical for purposes of this conversation about roles. The names of the players can be different, but the results are the same.
Let us take a look at how each of the above roles fits into the checkbook IRA construct.
Owner – The IRA
The ownership interest in the LLC or trust entity belongs to the IRA. In an LLC, the owner is referred to as a member. For a trust the IRA is classified both as the grantor (sometimes called trustor) who places value in the trust and the beneficiary who receives the benefit of the trust.
All capital contributed to the entity comes from the IRA, and all distributions of income from the entity will flow back to the IRA.
Primary Authority
An IRA is not a person. While the IRA can own the checkbook entity, it cannot direct the affairs of the LLC or trust, and therefore needs someone to fill that role.
The person who runs the show is referred to as a manager for an LLC or a trustee for a trust.
The IRA account holder holds this position. That means they can operate the entity to make investment choices, signing contracts, issuing funds from the plan checking account, and so forth.
Some IRA owners will choose to operate their IRA plan themselves, but this is not always the case, and that is where a secondary authority can come into play.
Secondary Authority
An LLC can have a co-manager and a trust can have a co-trustee.
While we refer to this person as secondary, the authority they wield is equal to the primary manager or trustee. Any single manager or trustee can execute contracts, manage the entity bank account, and otherwise control the entity.
There are a few cases where a secondary authority can be beneficial.
We have setup plans where one spouse has the retirement savings, but their wife or husband is the one with the expertise and/or time to put the money to work in investments like real estate, private equity, cryptocurrency, or other alternative assets.
Sometimes a parent wants to setup a plan for a minor child, and in that situation the parent will need to be a manager or trustee.
It is also common for an elderly parent to seek assistance from an adult child who can help them manage and protect their savings.
While it can be helpful in many cases to have a co-manager or co-trustee, we recommend against just naming your spouse in this role because they are your partner. You should only name a secondary authority if that person will actively be involved in helping manage the checkbook IRA. The reason is that while our plan documents stipulate that the signature of a single manager/trustee is sufficient to enter into a contract, some plan counterparties will ignore that and want both signatures. This is especially common with real estate title attorneys or companies.
Backup Authority
What happens if there is no manager or trustee capable of managing the plan in the event of incapacitation or death?
Ultimately, someone who is named as an IRA beneficiary can step in and assume the role of manger or trustee, but it can take some time to make that happen.
There might also be issues if the IRA beneficiary who you want to inherit the value of the IRA may not be capable of administering the plan – such as a minor child or a person with disabilities.
The solution is to name a successor LLC manger or successor trustee for a trust. This person is designated in advance to take control of the entity if there is no manager or trustee available.
Safeguard plans include a successor manager or trustee designation resolution that can be used to name such a successor. If the managing role is vacant due to death or incapacitation, that person can step into the role of manager or trustee.
Taxable Party
The IRA is always the taxable party. The whole idea behind the self-directed IRA is to keep the investment activities under the tax-sheltered umbrella of the IRA.
The tax liability of the LLC or trust flows through to the IRA that is the owner.
Inheritor
It is important to understand that control and inheritance are two entirely separate concepts.
Many people want to name their spouse a co-manager or successor trustee because they think that is necessary for their spouse to inherit the IRA. That simply is not the case. Management roles are strictly about the administration of the entity.
Beneficiary inheritance is not designated at the LLC or trust layer. The IRA is where this happens. When the IRA is setup with the custodian, you will name those who will inherit the IRA – and the LLC or trust it owns – if you pass.
You can name one or more primary and/or contingent beneficiaries, for your IRA. Those beneficiaries can be individuals, trusts, or other non-persons like a church or school. You can also update your IRA beneficiary designations at any time simply by submitting a form to your IRA custodian.
Options Are a Good Thing
We hope the outline we have presented here helps you better understand the different ways you can setup a checkbook IRA to achieve your specific goals.
Do you want help managing investments? You can make that happen.
Do you want to ensure your heirs are both enabled and protected with respect to inheritance of your IRA? There are several ways to ensure your desired outcomes after you take your leave.
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Quick answers to common questions
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
YES! In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (art, jewelry, etc.). Everything else is fair game. IRS CodeSec. 401 IRC 408(a) (3)
It’s actually pretty simple. Early on, regulators let the securities industry take the lead in educating the public about retirement accounts. Naturally, brokers and banks promoted stocks, bonds, and mutual funds—giving the impression that those were the only allowed investments. That was never true... and still isn’t. You can probably guess why they kept the rest under wraps.
It is possible to use funds from most types of retirement accounts:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Keogh
- 401(k)
- 403(b)
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- and many more.
It must be noted that most employer sponsored plans such as a 401(k) will not allow you to roll youraccount into a new Self-Directed IRA plan while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.
A Solo 401(k) requires a sponsoring employer in the format of an owner-only business. If you have a for-profit business activity – whether as your main income or as a side venture – and have no full-time employees other than potentially your spouse, your business may qualify. The business may be a sole-proprietorship, LLC, corporation or other entity type.
A self-directed retirement plan is a type of IRA or 401(k) that gives you greater control over how your retirement funds are invested. Unlike traditional accounts held at banks or brokerage firms that limit you to stocks, bonds, and mutual funds, self-directed plans allow you to invest in a wide range of alternative assets including real estate, private businesses, precious metals, cryptocurrency, and more.
These plans still follow the same IRS rules and maintain the same tax-deferred or tax-free benefits as conventional retirement accounts. The difference is simply in how and where you choose to invest.
No. Moving to a self-directed IRA or Solo 401(k) does not trigger any taxes, as long as your funds are eligible for rollover.
Self-directed retirement plans maintain the same tax-advantaged status as traditional plans offered by banks or brokerage firms. The key difference is flexibility—our plans are designed to give you greater control and allow for a wider range of alternative investments beyond stocks, bonds, and mutual funds.
A prohibited transaction is any action between your retirement plan and a disqualified person that violates IRS rules and can lead to serious tax consequences. Under IRS Code 4975(c)(1), prohibited transactions include:
- Selling or leasing property between your plan and a disqualified person Example: Your IRA cannot purchase a property you already own.
- Lending money or extending credit between the plan and a disqualified person Example: You cannot personally guarantee a loan your IRA uses to buy real estate.
- Providing goods or services between your plan and a disqualified person Example: You can’t use your personal furniture to furnish a rental property owned by your IRA.
- Using plan income or assets for the benefit of a disqualified person Example: Your IRA cannot buy a vacation home that you or your family use.
- Self-dealing by a fiduciary (using plan assets for their own benefit) Example: Your CPA shouldn't loan your IRA money if they’re advising the plan.
- Receiving personal benefit from a deal involving your IRA's assets Example: You can’t pay yourself from profits your IRA earns on a rental.
If a transaction doesn’t clearly fall within the allowed guidelines, the IRS or Department of Labor may review the situation to determine if it qualifies as a prohibited transaction.
Disqualified persons are individuals or entities that are prohibited from engaging in certain transactions with your IRA or 401(k). Doing so could trigger a prohibited transaction, which may result in taxes and penalties.
Here’s who is considered a disqualified person:
- You (the account holder)
- Your spouse
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and their spouses
- Any advisor or fiduciary to the plan
- Any business or entity owned 50% or more by you or another disqualified person, or where you have decision-making authority
These rules exist to prevent self-dealing and ensure your retirement plan remains in compliance with IRS regulations.
(Reference: IRC 4975)
Understanding and following these rules can be tricky, but it’s very doable. The best way to stay compliant is to work with professionals who specialize in self-directed retirement plans. They can help you navigate IRS guidelines and avoid prohibited transactions.
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.
Yes. While self-directed retirement plans allow for a wide range of investments, there are a few important restrictions.
You cannot invest in collectibles or life insurance contracts, and you must avoid prohibited transactions—activities that benefit you personally rather than the retirement plan. These include things like buying or selling property to yourself or family members, using plan assets for personal gain, or self-dealing in any way.
Violating these rules could cause your entire IRA to lose its tax-advantaged status. To protect your account, it’s essential to work with professionals who understand IRS regulations and can help you stay compliant.
This is a common misconception. In many cases, professionals may simply be unfamiliar with self-directed retirement plans, as they fall outside their usual scope of work. CPAs and tax preparers are trained to file taxes, not necessarily to advise on alternative retirement strategies. Financial advisors and brokers often work for firms that focus on traditional investments like stocks and mutual funds—and may not benefit from or support alternative options like real estate or private lending.
Self-directed retirement investing is legal under IRS rules—but like any specialized area, it requires working with professionals who understand how it works.
The IRS has rules in place to make sure your IRA is used only for the exclusive benefit of the retirement account—not for personal gain or to help family members. These rules can get complicated because there are many ways a conflict of interest can occur, even unintentionally.
For example, if your IRA buys a house and rents it to your mother, you might be reluctant to evict her if she stops paying rent. That emotional connection creates a conflict between what’s best for your IRA and your personal relationships, something the IRS aims to prevent.
These rules help ensure your retirement account stays compliant and protected. (See IRC 408)
Yes. Most tax-deferred retirement accounts—such as Traditional IRAs, old 401(k)s, 403(b)s, and TSPs—can be rolled over into a self-directed IRA or Solo 401(k), depending on your eligibility. Roth IRAs cannot be rolled into these accounts.
You can contribute directly from earned income, subject to annual IRS contribution limits. The method and amount depend on the type of plan you have (e.g., Solo 401(k) vs. IRA).
To take a distribution, you'll request funds through your custodian or plan administrator. Distributions may be taxable depending on your account type and age. Early withdrawals may be subject to penalties.
For 2025, the Solo 401(k) max contribution limit is $81,250 if age 60-63, $77,500 if age 50-59 or 69+, and $70,000 if under 50. Traditional and Roth IRAs have a limit of $7,000 ($8,000 if age 50+). Limits are subject to IRS adjustments.
Yes. IRA contributions are typically due by your personal tax filing deadline (e.g., April 15). Solo 401(k) contributions follow your business tax filing deadline, including extensions.
IRS reporting requirements vary depending on the type of self-directed retirement plan you have. Here’s a quick breakdown of what you need to know
Please note: Our team can help you understand what’s required for your specific account, but we don’t provide tax or legal advice. We always recommend working with a qualified tax professional to ensure full IRS compliance.
Self-Directed IRA (Traditional or Roth)
- Form 5498 – Filed by your custodian each year to report contributions, rollovers, and the fair market value (FMV) of your account.
- Form 1099-R – Issued if you take a distribution or move funds out of your IRA.
- Annual Valuation – You'll need to provide updated FMV for any alternative assets held in the account, such as real estate or private placements.
Solo 401(k)
- Form 5500-EZ – Required if your plan assets exceed $250,000 as of year-end. Must be filed annually by the plan participant.
- Form 1099-R – Required if you take a distribution or roll funds out of the plan.
- Contribution Tracking – Keep records of employee and employer contributions. These are not filed with the IRS but may be needed for tax reporting or audits.
SEP IRA
- Form 5498 – Filed by your custodian to report contributions and FMV.
- Form 1099-R – Filed by your custodian. Issued for any distributions.
- Employer Contributions – Must be reported on your business tax return (and on employee W-2s, if applicable).
Health Savings Account (HSA)
- Form 5498-SA – Filed by your HSA custodian to report contributions.
- Form 1099-SA – Filed by your HAS custodian. Issued for any distributions.
- Form 8889 – Must be included with your personal tax return to report contributions, distributions, and how funds were used.
