Today on the Passive Cash Flow Podcast we’ll look into what a Checkbook IRA is, how to setup a Checkbook IRA, and overall best practices and rules. Find out more today on the Passive Cash Flow Podcast!
The Passive Cash Flow Podcast is for beginner or experienced investors. Learn how you can diversify out of the stock market, own a part of an apartment building & start earning Passive Cash Flow!
Peoples Capital Group has been helping passive investors build wealth in NJ real estate for 10 years. Visit www.PeoplesCapitalGroup.com to find out if you qualify to start earning passive income and pay less taxes via investing in real estate. IRA’s and 401K’s are accepted.
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Aaron Fragnito: All right, ladies and gentlemen. Welcome back to the Passive Cash Flow show. I’m going to talk about, what is a checkbook IRA? I’m your host Aaron Fragnito, co-owner of Peoples Capital Group. We come out with a new episode every Friday at 8:00 AM, so subscribe to our YouTube channel. Peoples Capital Group on YouTube for videos every week and also to get more Passive Cash Flow shows here from Peoples Capital Group.
Let’s jump into today. What’s our topic? Our topic is, what is a checkbook IRA? A lot of people have questions about self-directing their IRA into real estate or other asset classes and how is that done, what’s the difference between a checkbook IRA account that you self-direct your IRA into or just leaving them with a custodian, what are the benefits of those two options. We’re going to really dig into how to self-direct your IRA, the benefits of taking an extra step.
If you need to do that as well, do you even need to create a checkbook IRA account or can you simply self-direct your IRA to a custodian who then moves into a passive investment, say, here at Peoples Capital Group? If you want to learn more about those passive investments by the way, go to peoplescapitalgroup.com. We have more information there on how you can apply and try to qualify for one of our upcoming investment opportunities in a New Jersey apartment building to get awesome cash flow and tax depreciation, a nice strong equity cash-outs upon the refi cash-outs.
Let’s go into the details here. What is a checkbook IRA? I teach every month, multiple times a month really, how to self-direct your IRA. The process is quite simple. Let’s say your IRA is with Merrill Lynch. If you have a 401(k), you can convert it into an IRA. Let’s say you have 401(k) and convert it into IRA and it’s sitting with Merrill Lynch right now. It’s right in the index fund. It’s making a solid 68% a year. What could possibly happen? It’s the stock market, right?
Well, we all know the stock markets had a good run and you want to diversify, diversify, diversify, so who knows where the next few years are going to bring us? That’s what we do here at Peoples Capital Group. We help investors diversify out of the stock market into tangible real estate here in New Jersey. We buy within an hour in Manhattan. Not in Manhattan, but outside of Manhattan in New Jersey, in North Jersey.
We play off the Manhattan market. We have a management company in-house, so our investors get a completely passive investment opportunity in New Jersey apartment buildings and get all the benefits of owning those buildings such as cash flow, tax depreciation, and large checks upon the refinance. How do investors do that? Well, a lot of them invest with their IRA. If your IRA is with Merrill Lynch, you’re going to move it in your IRA custodian.
You need to contact an IRA custodian first. There’s plenty of IRA custodians. There’s Next-Generation Trust. We do webinars with them. There is New Direction IRA. In fact, if you apply to New Direction IRA and let them know Peoples Capital Group had sent you over, they will wipe the $50 application fee, so there you go. This podcast just saved you $50. There’s other IRA custodians. You have Equity Trust and you have other IRA custodians that are available and have different rules.
Now, Equity Trust does not allow you to create a checkbook IRA account, which is the next step and other custodians do. Make sure when you’re hiring IRA custodian, if you decide that you want to create an LLC that’s owned by your IRA and managed by you that’s called a checkbook IRA LLC account, make sure your IRA custodian allows you to do that because some of them don’t allow you to do that because there’s added risks to doing that.
What a checkbook IRA LLC account is, an LLC that’s owned by your IRA and it’s managed by you. Let’s say your IRA is with Merrill Lynch. You’re going to call it Merrill Lynch. You’re going to say, “Hey, Merrill Lynch. I hired a New Direction IRA.” You’ve called up a New Direction IRA before this and you decided to hire them. You went over their fees. It’s very affordable, generally less than $300 to start an account and move your capital into an IRA custodian.
You contact a New Direction IRA. You hire them New Direction IRA and you are going to contact Merrill Lynch. Merrill Lynch are going to send the money over to New Direction IRA. Now, your IRA is sitting with New Direction and you have a couple of options with what to do with the capital at this point, with your IRA. You can invest in a passive apartment building with Peoples Capital Group. New Direction IRA will review the operating agreement.
They’ll have you sign off on the operating agreement and then wire the funds to the settlement company closing on the apartment building. Your IRA will own a piece of that apartment building and cash flow checks will go back to your IRA custodian every quarter and tax benefits that are a wash-through, but some benefits through an IRA and, of course, a big check upon the refinance.
Basically, at that point, you don’t have to go ahead and take this next step and create an LLC that’s owned by your IRA and managed by you, but you can. That’s called the checkbook IRA LLC account. That’s what we’re talking about tonight. Basically, your IRA custodian will move the capital into their IRA custodian account. At this point, you’re going to guide them, do you want to start that LLC account? What’s the benefit of that? Why would you even need to make this extra step?
Because I just explained a scenario where you can self-direct to the IRA custodian and move into a passive investment that’s a one-time transfer and then we’re going to transfer funds back to your IRA custodian, build your portfolio, build your IRA over time in a more aggressive rate by investing in New Jersey apartment buildings of Peoples Capital Group. Let’s say you want to flip a house and you want to invest passively at Peoples Capital Group.
Okay. Well, if you want to flip a house, you’re going to need money. You’re going to need it regularly. You’re going to need access to your IRA quickly. If you call up your IRA custodian, you say, “Hey, I want a check. I got to pay my contractor. He just finished the framing.” You know contractors, they’ve got to get paid right then. Even though when you need something done, it tends to take a while. Anyway, so it’s time to pay your contractor. He wants to get paid right then or your landscaper or your plumber.
You got to pay them right then. Contractors want to get paid quickly and they don’t want to wait three to five business days for a check from your IRA custodian. You have to pay your IRA custodian $5 to get a check from your IRA account. By having the money with an IRA custodian and needing access to the money quickly, let’s say you’re buying a property and actively managing it or you’re buying a flip and you’re actively flipping it, in these scenarios, you need the money very quickly and very actively.
You’ll want to create an LLC that’s owned by your IRA and managed by you. This is called a checkbook IRA LLC account. All right. This allows you to then move your money from the custodian. Remember, it was Merrill Lynch. Now, it went to New Direction IRA. It’s sitting with a custodian. You’ve decided you want to flip a house and invest passively with PCG. You’re going to start that IRA LLC account. It’s going to be owned by your IRA. It going to be managed by you.
You can’t pay yourself a management fee. You can’t pay yourself early. You can’t avoid any early taxes by pulling out of your IRA account. Unfortunately, there is no loophole there, but you can be more active with your IRA. Take control of it and you can invest in certain things. You can invest in your cousin’s new Facebook idea. You can invest in certain privately-traded stocks and then precious metals. Your IRA custodian is going to guide you a little bit on what you can and can’t invest in.
In fact, here at Peoples Capital Group, we even give you an operating agreement to start that IRA checkbook account, a checkbook IRA account. To start an LLC, you want to have an operating agreement. For this type of LLC, it’s very, very important to have the right operating agreement. This operating agreement goes over what you can and can’t do with your IRA funds once you self-direct it from the custodian to the LLC that you’ve created, that’s owned by your IRA and managed by you.
This IRA LLC operating agreement, Peoples Capital Group will give this to you if you’re seriously considering investing in a property with us passively. If you want to learn more about that, contact us at peoplescapitalgroup.com and connect it with a call if you’re qualified and you’re seriously considering an investment. We can actually send that operating agreement to you that allows you to operate this LLC. Now, again, you can’t pay yourself a fee.
You can’t pay yourself early, but you can go and be more active and take control of your IRA. You can make better returns by self-directing your IRA. Now, we’re talking about a third step here today. We’re talking about moving your IRA into a checkbook IRA LLC account. I’m explaining why you may or may not need to do that. Again, if you’re just being passive with the money or investing in one passive investment, say, with Peoples Capital Group and an apartment building, we’re going to send you checks every quarter.
You don’t need the money. You need it once. You’re going to send it to the title company. We close in on the real estate and then we pay you every quarter. You really don’t need access to the money very regularly like you would if you were managing a building or flipping a house. However, if you want to be more active with the money and do multiple things, you’re going to need those checks quickly to pay those contractors, then you want to create that LLC account.
It’s going to be owned by your IRA. It’s going to be managed by you and then you have the operating agreement that outlines what you can and can’t do with the IRA funds. We can give you this operating agreement that’s cost us $3,500 from our attorney. We’ll give this to you for free if you’re qualified and seriously interested in investing with Peoples Capital Group. To get that, go to peoplescapitalgroup.com and see if you qualify for investment.
We can send that IRA operating agreement to you if you want to create this IRA LLC checkbook account. Once you create this IRA LLC checkbook account, it’s up to you to make the right decisions. If you take your spouse out to dinner and you take out the wrong card and you pay with your IRA checkbook account, well, now, you’ve just broken the rules. If you get audited, you’ll owe tax on your entire IRA, not from when you made the mistake forward on your entire IRA.
You better bet it’s actually safer to just move your IRA to a custodian and then have that custodian moving into one or two passive investments. That IRA custodian is going to guide you because they’re holding your IRA and they’re moving it into another investment. They’re going to review the investment. They’re going to review the operating agreement. They’re going to make sure everything is okay for the IRA to invest in there.
Now, they’re not going to read the opportunity and say, “Oh, don’t invest in this. It’s not in a good area. Don’t invest in Bitcoin. It’s unstable.” They’re going to just say, “Oh, you can or cannot move your IRA into this and here is the tweak you need to make to the operating room in or wherever to allow that.” Here at Peoples Capital Group, when we create an operating agreement for a new building purchase, it’s specifically designed for people to be able to self-direct their IRA into that.
Because about a third of our investors self-direct their IRA into our investments, so it’s very, very popular for people to do that with our properties. Again, it’s totally passive. It’s IRA-friendly. You could self-direct your IRA into an apartment building in Peoples Capital Group, give quarterly passive cash flow checks. By having a good operating agreement that IRA custodians can invest in, that makes the process easier for you.
Now, if you are a cowboy and you want to go flip some houses with that IRA, well, the IRA custodian is not going to guide you so much once you move your IRA into that LLC account that you’ve opened that’s owned by your IRA and managed by you. You can’t go back to your IRA custodian every time you’re looking at a flip or every time you have a check to cut and say, “Hey, is this the right or wrong thing to do?”
Because now, your IRA custodian has sent the money to your LLC, so it’s up to you and your LLC to make the right choices with that money. There’s extra risk when you are self-directing to a checkbook IRA LLC account that’s owned by your IRA, managed by you. There’s an extra risk because your IRA custodian is not going to guide you as much. There’s an extra cost because you have LLC filing fees every year and the startup cost of an LLC.
You probably want to have your attorney review the operating agreement and everything. At that point, yes, you do have access to your IRA more quickly and more easily. You don’t have to pay for a check or wait a few business days to get it from your IRA custodian, but it’s up to you not to break those rules. Again, if you want that operating agreement to start this IRA LLC checkbook account, go to Peoples Capital Group. Put in your information.
If you qualify for one of our passive investment opportunities, we can give you that operating agreement if you are serious about investing with Peoples Capital Group. The best and easiest way to self-direct your IRA is to actually not start the checkbook IRA LLC account. It’s one extra step that costs more and adds more risk and isn’t necessary if you’re just simply investing with Peoples Capital Group.
Most of our investors just self-direct their IRA, say, from Merill Lynch to New Direction IRA and costs a couple of $100 to open an account. They take a look at the operating agreement, which they’ve approved many times and moved the money into the title company for settlement once the operating agreement is executed by you. It’s much simpler that way, then we send the checks back to the IRA custodian.
You build that IRA over time and then you can maybe invest in another property down the road. Again, checkbook IRA LLC account is an option. That’s the third step then that you would start the LLC account. That’s going to be owned by your IRA and managed by you. You can’t pay yourself a management fee. You can’t pay yourself early. You can’t put your kid through college. You can’t take your spouse out to dinner.
You can make a loan to your cousin. You can make a loan to your brother to start that tech company he always wanted. Maybe do some due diligence first. Make sure you’re investing in the right things and not breaking the rules. If you do break the rules, just hope you do not get audited. That’s how you create and operate. That’s the basics of how to create and operate a checkbook IRA LLC account.
That’s the difference between self-directing your IRA to a custodian and simply moving into a passive investment. If you need access to the money more readily, you’re going to start that IRA LLC account. If you have questions about that, if you want that operating agreement, if you want to see if you’re qualified for one of our upcoming investment opportunities in New Jersey apartment building, go to peoplescapitalgroup.com. Put in your information.
We’ll get in touch right away and see if you qualify for an upcoming investment opportunity. We make it easy to qualify. We work with accredited and sophisticated investors, so non-accredited investors as well. That means we can work with real people all through the spectrum as long as you have the minimum investment amount of $30,000. If you want to know more about that, go to peoplescapitalgroup.com. I’m Aaron Fragnito. If you have any more questions, go to peoplescapitalgroup.com.
