Allowable Investments in Checkbook-Control Retirement Plans

The Tax Code does not stipulate permitted investments for Self-Directed Checkbook Control Retirement Plans. Rather, the Tax Code provides a short list of non-permitted investments – all other investments are permitted. The list of permitted investments is infinite and is confined only by the limits of your imagination. Nearly all popular asset-classes are permitted to Checkbook Retirement Plans.

Although an asset class may be permitted to a Self-Directed Retirement Plan, the prohibited transaction rules must be followed. Likewise, the Checkbook Plan investor must be aware of UBIT, UBTI, and UDFI that could impact investment returns.

Checkbook-Control 401k and Defined Benefit Plans Non-Permitted Investments

Collectibles in Self-Directed Checkbook Qualified Retirement Plans

Section 408(m) of the Tax Code disallows investment in collectibles for 401k and Defined Benefit plans. Collectibles include:

  • Artwork
  • Rugs and antiques
  • most metals and gems
  • Stamps and most coins
  • Alcoholic beverages

Amounts invested in disallowed collectibles are treated as distributed to plan participants.

Life Insurance in Self-Directed Checkbook Qualified Retirement Plans

Section 1.401-1(b)(1)(i) and Section 1.401-1(b)(1)(ii) of the Federal Tax Regulations permit the purchase of life insurance only to the extent that it’s an “incidental benefit” to retirement benefits provided by qualified plans. The definition of “incidental benefit” has been further clarified by the IRS in several revenue rulings.

S-Corporation Stock in Self-Directed Checkbook Qualified Retirement Plans

To maintain S-corporation tax treatment, an entity must be a “small business corporation” as defined in Section 1361 – S Corporation defined. Having certain ineligible shareholders can result in the entity no longer meeting the definition of a small business corporation and termination of its S-corp status. Although S-corporation shareholders must generally be individuals, Section 1361(c)(6) provides an exception allowing Qualified Plans to be S-corporation shareholders.

Checkbook-Control IRA-LLC Non-Permitted Investments

Collectibles in Self-Directed Checkbook IRAs

Section 408(m) of the Tax Code disallows investment in collectibles for Self-Directed IRAs and IRA-LLCs. Collectibles include:

  • Artwork
  • Rugs and antiques
  • most metals and gems
  • Stamps and most coins
  • Alcoholic beverages

IRA funds invested in disallowed collectibles are treated as distributed to the account owner and subject to taxation.

Life Insurance in Self-Directed Checkbook IRAs

Section 408(a)(3) of the Tax Code disallows investment by IRAs in life insurance contracts. Amounts invested in life insurance are treated as distributed to the account-holder.

S-Corporation Stock in Self-directed Checkbook IRAs

Section 1361 of the Tax Code and Section 1.1361-1(h)(1)(vii) of the Tax Regulations make it clear that Checkbook IRAs are not eligible S-corporation shareholders. S-corporations that have IRA shareholders lose their S-corp status.