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Managing your Checkbook IRA/LLC

After you've completed your investment, you can manage your portfolio and take the following actions within our online portal. 

Checkbook IRA Maintenance 

Once all funds have been transferred from your retirement account to the entity’s bank account, the manager is responsible for the record-keeping of any investments made and any cash flow.  

On an annual basis, NDTCO will request a Fair Market Valuation of the entity. This valuation will need to include the value of all investments, liabilities, and cash balances. You will need to provide supporting documents for each asset held by the LLC.   

Changes to entity documents: The entity must not allow changes to the entity documents without member approval; in particular, the approval of the appointing or changing of managers or trustees. NDTCO must sign on behalf of the IRA for all changes made to the entity documents. Please note, if you have partnered with a disqualified person, once the initial investment has been made, the percentages must remain in the same proportion throughout the life of the entity. 

Some of the responsibilities of managing an entity within your IRA are:  

  • Filing tax returns for the entity  
  • Filing annual reports with the Secretary of State  
  • Paying reporting fees to the Secretary of State  
  • Filing 1099s or other IRS reports as required  
  • Providing financial statements and annual valuation of the entity to New Direction Trust Company  

Cash Flow 

Additional Funding 

To move additional funds from your NDTCO retirement account into your LLC, the process is very similar to the initial funding process. Complete the Buy Direction Letter to authorize NDTCO to fund the entity. The Buy Direction Letter can be completed online through your account portal, selecting “Invest” on the left-hand side of the screen.   

If you have partnered with your IRA and other disqualified persons, any additional funding must be made in the same ratio as the original ownership percentages, defined in the membership table.   

Capital Call Letter – Entity will supply the Capital Call Letter OR a new Subscription Agreement. For additional funding, a new purchase or subscription agreement may be required by the entity. The Capital Call Letter must include the name of the LLC, correct title for the IRA, amount of the additional funding, it will need to be signed by the manager of the LLC, and “Read and Approved”.  

If the entity is a Closely Held LLC that is managed by the account holder, the capital call letter can be written and signed by the account holder/manager.   

Earnings 

All earnings from your LLC must flow directly back to your retirement account. Receiving dividends or returns of capital personally, instead of through the IRA, may be construed as a prohibited transaction and result in the distribution of the IRA entirely, along with taxes and penalties.   

If you have partnered between your IRA and other disqualified persons, any dividends must be made in the same ratio as the original ownership percentages, defined in the membership table.   

To deposit a dividend or return profits and the value of the LLC is staying the same, the following is needed: 

  • Deposit Coupon– Select the asset associated with this deposit and select the deposit type as Dividend.   

If the percentage or value owned by the IRA is being reduced, the following is needed to deposit funds from the LLC into your New Direction Account: 

The movement of funds from your LLC into your NDTCO account can be made through the following options: 

Checks mailed to NDTCO  

  • Ensure the checks are payable to your IRA as follows: NDTCO as Custodian, FBO Account Holder’s Name IRA.  
  • We cannot deposit any earnings from your investment via check into your IRA that are made payable to you personally. Any such checks will be returned.   
  • Funds received without identifying NDTCO documentation (Deposit Coupon or Sell Direction Letter) will not be deposited in your account.   
  • There is a 5-business day hold on incoming checks beginning on the date of deposit.   

Deposit Service  

  • If you are expecting regular ACH dividends, we can help you by setting up a complimentary deposit service for those dividends to flow into. Once the deposit service is set up, it will be specific to your NDTCO account and a single asset in your account. You will receive a specific ABA/routing number and account number via portal message, which you can use for making direct deposits. No fees apply for the complimentary deposit service, this is included in your NDTCO annual administration fee.    
  • For NDTCO to establish a deposit service account, please submit a portal message request online. You will need to provide the following information…   
  • Type of deposit (contribution, rent, dividend, etc.).  
  • Asset the deposit is associated with. 
  • Percentage of ownership if it’s split with another account holder.  
  • Which account is applicable if you have more than one account with NDTCO.  

Expenses 

Money to pay for any expenses or fees related to the investments within the LLC, cannot be paid personally. The money needs to come from the LLC and not you personally.   

Distributions

Cash Distribution 

All cash distributions must go through your IRA, and not directly from the LLC. Money needs to move from the LLC, back to the IRA and any distributions will come out of the IRA.   

To take a cash distribution, the following items are needed: 

  • Complete the online Distribution and Notice of Withholding Form through your account portal. To access the form, login and select ‘Distributions’ on the lefthand and complete the section for cash distributions. Changes to scheduled distributions can be made directly from the distribution page.   

In-Kind Distributions 

If you are looking to take personal ownership of your LLC or a portion of your LLC, it must be distributed and not sold directly to yourself.  

To take an in-kind distribution, the following items are needed: 

  • Fair Market Valuation (FMV) will need to be completed with documentation for each asset within the LLC.  If the LLC holds real estate, a full appraisal will be needed (within 3 years if RMD age, within 1 year if under RMD age).  
  • Accompanying documentation-Operating agreement or membership table that reflects the changes in ownership.   

In-kind distributions will incur both a distribution fee (unless the account holder is taking an RMD) and an in-kind asset re-registration fee.  Please refer to our fee schedule for details. 

In-Kind distributions are reported as income on tax form 1099, please seek counsel from a qualified tax professional if you have any questions about the form or how to report it with your taxes.  

Annual Fair Market Valuations 

Per IRS regulations, you must submit Fair Market Value (FMV) information for your IRA-owned closely held entity once per year at a minimum. This valuation will need to include the value of and documentation for all your investments, liabilities, and cash balances.   

For the valuation to be processed, supporting documentation is required for each asset held by the LLC. Required supporting documentation (value of all investments, liabilities, and cash balances) will depend on the assets your IRA owned LLC holds.   

Failure to provide an annual valuation may result in the taxable distribution of your asset. Accounts that have shown no activity, including the valuation, will not be held by NDTCO because we cannot meet the IRS requirement to annually update the value of your IRA and file an accurate IRS Form 5498 for your account.    

To complete a Fair Market Valuation Form, please:  

  • On the Overview page, find the appropriate asset and select Take Action and then Valuate in the right-hand column.    
  • Provide any requested information and upload your supporting documentation.   
  • Agree to the Terms & Conditions and click Submit. Done!   

Supporting Documentation:  

  • Valuation from the County Tax Assessors Office    
  • Comparative Market Analysis (CMA)  
  • Appraisals    
  • A letter from the borrower, a CPA, an attorney, or a public document  
  • Valuation letter or annual shareholder statement from the investment company, a CPA, an attorney, or public document.   
  • Statements from bank or brokerage accounts.   

 Supporting Documentation NOT accepted:  

  • Emails do not constitute valid supporting documentation for FMV purposes.  
  • Zillow screen shots are not valid for FMV purposes.  
  • Schedule K-1s.  
  • Documentation older than 6 months from creation date.    

For further information on Fair Market Valuations (FMV) and how to submit a FMV, please use this link. Fair Market Valuations – New Direction Trust Company (www.ndtco.com)   

Prohibited Transactions 

A Checkbook IRA affords a greater degree of flexibility but also warrants more responsibility on the part of the investor. When investors have direct access to their retirement funds, there is an increased risk of performing a prohibited transaction.  

The following actions are considered prohibited transactions and could result in the distribution of this asset from your plan. When an IRA buys into an entity, the entity is required to comply with the IRS prohibited transaction rules. Prohibited transactions apply to all disqualified persons to your plan.  

  • Engaging in a transaction between your account and a disqualified person  
  • Yield a commission/fee for the purchase, sale, or exchange of assets  
  • Cover account expenses with personal, non-account funds  
  • Use of your IRA’s assets as collateral for a personal loan  
  • Use of your IRA’s assets to guarantee credit for a loan  
  • Receive dividend or distribution payments directly instead of having them go to the IRA  
  • If you hold Real Estate within your LLC, it has to be for investment only purposes, you cannot live in the property or rent to a disqualified party.  

If it is done correctly, it is possible to create an entity that has disqualified persons as members. Ownership between disqualified persons must be decided prior to initial funding; once the initial investment has been made, the percentages must remain in the same proportion throughout the life of the entity. Disqualified members must also receive the same deal, dollar for dollar on the entity investment. If a distribution from the entity is needed, all disqualified persons must distribute funds according to their ownership. If a dividend is paid by the company, it should be paid by percentage of ownership to all investors.   

While we can share IRS rules with you, NDTCO does not give tax, legal or investment advice; refer to your financial or legal representative for further details or a possible solution.  

Unrelated Debt-Financed Income (UDFI/UBIT) 

Unrelated Business Income Tax applies to debt financed property in IRAs and also applies to operating income received from companies owned by IRAs and qualified plans. Typically, the debt financed income is taxable under UBIT rules for the percentage of the investment that is debt-financed.  

The amount of UBIT is determined by the percentage of the amount of total indebtedness from the acquisition of the investment. Depending on the business activity of the LLC, it may be that the LLC is operating a business, and thus all of its earnings may be subject to UBIT as a result. IRS Form 990-T is used to calculate UBIT for your IRA. NDTCO does not calculate UBIT or submit form 990-T. Click here  to download our free UBIT calculator.  

  • See here for more information on UDFI, UBTI, and UBIT.   

Managing Your Account 

Our online account portal combines human power and digital innovation, making it simple to view all your account information in one centralized location. Within the portal, you have the ability to directly message our support team, review recent transactions, download account documents, and review a vast library of educational content easily and securely.    

Simply log into our Account Holder Portal to access and manage all your account information.    

Learn more.    

Forms 

  • Closely Held Entity Acknowledgement Letter – Confirms acknowledgement of high-risk investment nature of closely held entities in regards to sections 4975, 408, 408A, and other relevant sections of the Internal Revenue Code (IRC)  
  • Sell Direction Letter-This form directs us to sell the asset. Please upload supporting documentation while completing the Sell Direction Letter.  
  • Deposit Coupon-The deposit coupon allows you to deposit dividends into your account.  

Please login to the Account Holder Portal to view forms.