Owning a Checkbook Control IRA

Estimated reading time: 3 minutes(Last Updated On: December 23, 2020)

Checkbook IRA is a term that makes reference to IRA accounts that gives holders of a certain account complete control of their investments by using a checking account. To do this, the person in control of the account makes sure things like a trust are created, and these are only able to be managed by the administrator for the account or the holder of the account. Then, a bank account is opened by the IRA, which leads to the owner receiving a checkbook for the account. Investments can now be made by writing a check. So what are the pros and cons of owning a checkbook IRA?


There are many pros to having a checkbook IRA, but the main benefit to having a checkbook IRA is how much control the owner of the account is given. If there is not a checkbook connected to the account, the holder of the account must regularly stay in contact with the manager of the account so that investments can be made. Checkbook IRAs can also create savings on custodial fees. Usually, a fee will be charged on each investment made using an IRA. Directly making investments allows an owner of an IRA account to avoid large fees that could be charged simply for investing money into their own personal account. Minimal fees may still be charged, but it will be smaller and it will only have to be paid annually.


Though paying less to make investments does sound really good, there will no longer be a custodian to look over any of your investments before they can be confirmed. Many problems could arise, but the most common problem is that an investment that is not allowed to be used towards IRA funds might be made, which could lead you to getting penalized by the IRA. You also have the option of running into misreports of investments around the time of taxes. Custodians are usually people who get paid for helping you go through with investments and make sure that you are paying your taxes. They are also in charge of your W-4 yearly.  If there are any mistakes with transactions, the custodian is likely to end up misreporting.

When to Use Checkbook IRAs

Though they seem easier to use, checkbook IRAs are not easy for everyone to use. The best people to use these accounts are people who have become very familiarized with how investments work and the processes behind tax accounting. This is a perfect account for someone like a Certified Public Accountant, and since many of them work in private practices, they are not likely to run accounts from an employer. They can still set up accounts for retirement, though. Since they are able to understand investments that are deferred from taxes and understand what can happen with their investments once a transaction goes through, a custodian may not be beneficial to them and further actions with investments. Being unfamiliar with the regulation could be dangerous to your IRA if you are self-directing it.

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