Regular IRAs usually house only stocks, bonds, mutual funds, and other relatively common investments. Self-directed IRAs offer much more possibilities. For example, you could invest in real estate or a private company. You'll just need to find a custodian who will accept the deal and you'll be ready to go.
With any IRA, you need a custodian or trustee to maintain the account in your name. If you have an investment plan that a traditional IRA doesn't support, a self-directed IRA may be your solution. A checkbook IRA account requires the additional step of transferring money from the IRA to your LLC checking account. A self-directed IRA is a traditional or Roth type of IRA, meaning that it allows you to save for retirement with tax advantages and has the same IRA contribution limits.
A checkbook IRA is actually a checking account of a limited liability company (LLC) that is funded by its self-directed IRA. Kirk Chisholm, wealth manager and director of Innovative Advisory Group, an investment advisory firm that specializes in self-managed IRAs, says he met an experienced real estate investor who had been buying properties with his IRA. Whether you have a conventional IRA or a self-directed account, you can structure it like a traditional or Roth IRA. Advocates of self-managed IRAs claim that their ability to invest outside the mainstream improves their diversification, but a self-directed IRA can just as easily lack diversity as any other retirement account.
Given the complexity of self-managed IRAs, you may want a financial advisor with experience managing investment transactions for self-directed IRAs to help you make investments with due diligence. Some self-directed IRA providers that should investigate are UDirect, Rocket Dollar, Equity Trust, IRA Financial, Alto IRA, STRATA Trust Company, and Entrust Group. Self-directed IRAs allow you to invest in a wide variety of investments, but those assets are often illiquid, meaning that if you're faced with an unexpected emergency, you may have difficulty getting money out of your IRA. A common ruse is to say that the IRA depositary has examined or approves the underlying investment, when, as the SEC points out, custodians generally do not assess “the quality or legitimacy of any investment in the self-directed IRA or its promoters.” It is also prohibited to partner with a disqualified person to purchase real estate through their self-directed IRA.
If a normal IRA seems more appropriate to you, here's a comparison between the brokers we've selected as the top IRA account providers.