You May Not Have the Total Control You Think You Do

By Tim Berry

Countless self-directed investors have set up individual retirement account (IRA) LLCs in order to better manage assets and make investments in an efficient fashion. Most investors believe that since they are the beneficiaries of the IRA, they indirectly own the IRA LLC and the assets inside that LLC. They also tend to believe (mistakenly) that other custodians or trustees of the IRA cannot act in regard to the LLC without the beneficiary’s permission. 

I have some bad news: If you think this, then you’re wrong. 

Your custodian can “go rogue,” should they decide to do so, at any time. They can do what they want with your IRA LLC and the assets in your IRA, and they do not have to ask you first!

Now, are most custodians likely to start making changes in your IRA LLC without permission? Of course not! It would be professional suicide. But if a custodian wants to do something to your IRA LLC without your permission, then the option is there. 

Here is an example of that sort of “compelling reason” from a Utah case that involved the SEC, a Utah corporation, and a Ponzi scheme that finally went south:

On January 18, 2017, a judge ruled that the custodian of certain self-directed IRA LLCs could force the dissolution of those LLCs in order to force the account holders to pay a 10 percent fee on the assets in those LLCs.  

Why were the account holders being forced to pay a 10 percent fee? Well, the “head honcho” at that particular custodial firm had been running a Ponzi scheme that caused outside investors to lose millions of dollars. When the SEC got involved, the IRAs held by that custodian were “fined” a 10 percent fee in order to help recover the losses caused by the Ponzi scheme. The account holders who opted not to pay that fee were subject to a lawsuit by the custodian forcing the dissolution of their LLCs in order to gain access to the funds to pay the 10 percent penalty. 

The receiver for the custodian argued that it was the sole member of the LLCs and LLC members in Utah have the right to dissolve the LLC. The court agreed and ordered the LLCs to be dissolved. The assets were sold at auction – and probably not for top dollar, either! 

Sometimes, Control is an Illusion

When self-directed investors set up IRA LLCs, often referred to as checkbook IRAs, they do so in order to garner a greater degree of control over the capital held in their retirement accounts and the assets in which they invest. Imagine the pure, impotent fury of learning the vehicle that was designed to give you more control over your retirement was actually the key to your complete loss of control over said funds? 

It would be pretty awful. 

Fortunately, you do have options. One of the best options for self-directed investors is to use a self-directed 401(k) instead of a self-directed IRA. Self-directed 401(k)s provide better protection in the event that you commit a prohibited transaction, allow for far greater control of your assets, and create a safer environment for your capital. 

Although many self-directed investors believe they are not eligible for a self-directed 401(k) because they have full-time employees in their company other than themselves and possibly their spouse or because they think their current income does not qualify, the benefits of using a 401(k) so far outweigh other vehicles that it is definitely worth a call to your trusted self-directed account attorney to find out if there is any way to make a 401(k) work in your situation. 

If there is not, then work with your advisor to make sure you are working with a self-directed IRA custodian or administrator who has a long record of trustworthiness and excellence in client service and account management because you will be trusting this company with your financial security in retirement. 

Tim Berry is a self-directed IRA and 401(k) attorney with more than 20 years of experience helping self-directed investors with their retirement accounts and serves as Self-Directed Investor Society’s legal counsel. Make sure you are doing things right, create an estate plan with the proper provisions for the next generation, and get expert advice on all aspects of your self-directed investment strategies at or email Tim directly at