Why IRA Real Estate Investors Need Checkbook Control
A self-directed IRA or Solo 401(k) plan that offers checkbook control can have many advantages over a similar plan offered by a 3rd party custodian serving as a processor. When it comes to investing in real estate, the benefits that come with checkbook control are significant.
Checkbook Control vs Custodian
There are two different plan option when it comes to investing in alternative assets with a self-directed IRA or Solo 401(k). You can use a custodian or build a plan that offers checkbook control.
An IRA custodian is a financial services institution, usually formed as a registered trust company, that can administer IRA accounts. There are several non-traditional IRA custodians that have the people and paperwork to document unique investment assets like real estate, private equity, cryptocurrency, etc. A custodian acts as processor. They will hold plan funds, and at your direction will execute contracts, fund the expenses of acquisition or maintenance of investments, and receive the income produced by those investments.
To provide checkbook control for an IRA, a custodian is used, but they are limited to an administrative role only. The IRA will make a single investment into a specially crafted LLC or Trust entity – something we do here at Safeguard Advisors. While the IRA owns the entity, you can be the person with signing authority and can therefore directly manage plan investments. Using the LLC or Trust, you can execute contracts and deal with the handling of expense and income transactions using a checking account you control. The custodian is not involved.
Now that we understand the different models, lets take a look at how a checkbook control IRA is better suited for investing in real estate.
Act Immediately
One of the primary disadvantages of using a custodian is the processing queue. Any time you need to make a move, whether to execute a contract, pay an expense like property taxes or repairs, or deposit rents, you have to go through the custodian. The custodian will have forms that need to be submitted that provide them instructions on what needs to be accomplished. They will receive hundreds or thousands of similar requests each day, and therefore a 2–5-day processing queue is not uncommon. During busy times like year end and tax season, wait times can be even longer.
When you invest with an IRA owned LLC or Trust, you can act immediately without need for 3rd party processing.
Writing offers and executing contracts is much, much easier when you do not have to have the paperwork reviewed by a 3rd party.
Property Maintenance
Maintaining an IRA owned rental property is an interactive process. Most properties have regular expenses related to property taxes, landlord insurance, and perhaps a mortgage. There will also be occasions where you need to pay for repairs or hire in services like landscaping or snow removal.
Having to go through a 3rd party processing agency for each and every such event can be a real headache. The paperwork, delays, and per-transaction fees associated with custodial processing can really eat into your time and the income produced by the property.
The need to have all expenses paid via the IRA can also create real operational problems if you don’t hold the checkbook. Imagine if the water heater or HVAC system stops working. You have an obligation to your tenant to have the repair handled as quickly as possible, but need to tell your contractor that payment will be forthcoming from your IRA in 7-10 business days. That is really going to tie your hands.
When you hold the checkbook, you can take care of all such matters immediately. It is so much more efficient.
Property Management
Most custodians will require that you have a 3rd party property manager. While this can be a best practice whether you use a custodian or operate a plan with checkbook control, it is not a legal requirement. The need for a property manager simply solves the operational difficulties of using a custodian as processor, by minimizing the need for the IRA to directly handle expenses.
As the IRA account holder and a disqualified person to your IRA, you are allowed to administer IRA investments. You must limit your actions to things that are ministerial in nature such as executing contracts, selecting and paying vendors, and receiving the income produced by investments.
You can act as a property manager for your IRA if maintain such an administrative posture. For investors who understand how to properly manage properties and tenants, not being forced to hire a 3rd party property manager can be a big benefit.
Lower Cost of Operation
The fees for most custodians are based on the amount of processing they do. You can imagine that if it takes $15-$50 every time you need to pay a utility bill or a landscaper, that can really add up. Buying and selling properties often costs several hundred dollars. While some custodians simply charge a flat fee based on the dollar value of the account the cost can still be significant over time.
Because there is no 3rd party processing layer with a checkbook IRA, your annual operating costs will typically be significantly lower than using a custodian. The legal structure of the plan will cost more to establish initially, but a few years out your overall plan costs will be less.
Access to Meaningful Guidance
Custodians are processing agencies. They can guide you through how to fill out a form to process a transaction. That, however, is where their guidance stops. A passive custodian cannot provide tax, legal, or investment advice by rule.
When you work with a professional provider of checkbook IRA plans like Safeguard Advisors, you gain access to quality guidance. As advisors and consultants, we can help you to understand and navigate IRS rules in a way that the processing staff at a custodian simply cannot.
For Real Estate Investors, Checkbook Control Is a Must
It really is difficult to effectively invest in a dynamic asset like real estate when you do not have full control and access to professional guidance. For real estate investors, the benefits of checkbook control are clear.
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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.
