Direct Custody or an IRA LLC are different ways to save a tax-advantaged alternative investment inside of an IRA. There are pros and cons of direct custody or bank control, usually related to how easy it is to enter and manage an investment.
Traditionally, the self-directed retirement investing world is for alternative investments and was only an option for the mega-rich with high opening costs and a complicated, extensive process. However, as the demand for more control over retirement funds grew, Rocket Dollar has aimed to open up the industry of self-directed retirement investing to a broader audience/average investor. With a quick, easy, and affordable process, anyone can access investments through their IRA.
How do I figure out what is right for me?
As of March 2022, Rocket Dollar has launched a Direct Custody IRA at our Silver price level. Learn more about our new direct custody product here.
Direct Custody Overview
- Easier for alternative investing beginners.
- Initial setup is quicker than checkbook control.
- A clear process for one investment or with common paperwork. To review common investments in a direct custody account, like private placements, limited partnerships, real estate funds, pre-IPO stock, and secured or unsecured notes, you can read more here.
- All investments must be reviewed by the custodian.
- Approved investment classes are at the whim of the custodian. Typical investments should not have a problem.
- It can be challenging for complex, hard-to-value assets to get past deal reviews (brand new startups, private loans, international funds with no track record, new crypto projects, mom-and-pop or handshake investments that draw up simple contracts without the professional documentation of a corporate or investment lawyer)
- Cannot invest in cryptocurrency
- Not allowed to hold direct real estate in these states: Florida, New York, Wisconsin, Michigan, South Carolina, Illinois, Tennessee, and North Carolina. This ONLY applies to direct property ownership. PPMs, LPs, or fund investments are ok.
IRA LLC with Checkbook Control Overview
- Recommended for sophisticated investors looking to invest in diverse asset classes
- Once the longer setup is complete, easy to use (2-3 weeks setup minimum)
- More direct ownership of investments all through an LLC and bank account
- No wait times for custodial approval, and can send a wire or check for same day funding of an investment
- Invest in asset classes not approved by a custodian (as long as it is not an IRS prohibited transaction)
- Rocket Dollar creates the LLC and all necessary basic LLC registration for you.
- Have control of a checkbook bank account, checks, and debit card to manage investments
- It takes longer to initially set up, at least 2 weeks with Rocket Dollar Gold, or at least three weeks with Rocket Dollar Silver.
- Requires active participation by the account holder to send money, or share wire information to receive money back. Since the client is the only account manager on the bank account, the client
- Some investors are not familiar with LLC titling and investment LLCs and prefer a simpler workflow
- the client must initiate all wires. It can frustrate those who wish to remain hands-off.
- California Investors are taxed on all LLCs $800 per year regardless of state by the California Franchise Tax Board (Rocket Dollar uses Colorado LLCs). There is no way to avoid these taxes or reporting requirements if you have a California mailing address. California investors wishing to avoid these requirements should open a direct custody IRA or Solo 401(k) instead.