In February 1985, in an act of ingenuity and independence, James Swanson opened an individual retirement account (IRA) and structured it such that he was able to direct its investments. The IRS audited his account and the transaction went through review in tax-court. In 1996, the US Tax Court sided with Mr. Swanson’s structure and the self-directed IRA with “checkbook control”–the checkbook IRA–was born. (Source: Swanson v. Commissioner, 106 T.C. 76 (1996)).
One of the best ways to mitigate risk is to find an asset that is uncorrelated with your other assets. The self-directed IRA is like other IRAs, but the principal difference is the account holder has broader discretion about the types of assets they can choose. This is why it is sometimes also referred to as a checkbook IRA. For example, instead of your IRA funds being in an account where you can only buy stocks or bonds, you are able to invest in a wider array of alternative assets like real estate, start-ups, gold, promissory notes, and other private placements.
This is similar to what wealthy investors do with trusts, what family offices do with investment funds, and what pension funds and endowments do with their investments: diversification. These astute investors are able to diversify their holdings into more assets types. Just like the limited partnerships (LP) or limited liability corporations (LLC) these investors form, the checkbook IRA is usually a new, single-member LLC that invests on behalf of the IRA account-holder.
Investors seeking to take advantage of the checkbook IRA need a custodian or servicer of the account. There are many, but it is hard to find self-directed IRA providers that leverages modern web technology to deliver a high-quality investor experience and lower fees. That’s why we were struck by the quality of the offering at Rocket Dollar.
Rocket Dollar has developed a stream-lined web experience for their checkbook IRAs. They have also innovated and developed a product focused on entrepreneurs still growing their business with their Self-Directed Solo 401(k). Their investor education and partnerships with alternative asset providers gives individual investors a ready path to what Rocket Dollar terms “21st Century Diversification“.
If you want to learn more about using Rocket Dollar to invest in alternative assets like Luna Capital Fund, start by consulting Rocket Dollar about your options for a self-directed IRA.
Luna Capital supplies crowd-funded private equity debt during buy-outs of aged ecommerce and SaaS companies.