David Schaffer already had a self-directed Roth IRA through IRA Innovations. He had been a trusted  client of ours for years, and he decided he wanted to branch out a little more than he has in the past. He’s always been pretty conservative, and while he didn’t want to take too many risks, he felt good about a possible private equity investment.

As we learned in this post, retirement plans can hold shares of a privately held company, just as they can hold stock in a publicly traded company, and this is what David wanted to do.

He talked to us about his idea to invest in a new, local community bank. He felt like it was a strong company that would only grow in coming years. David decided he wanted to invest $25,000 of his Roth IRA into this new, start-up bank.

David knew it was a little risky since there was certainly the possibility that the bank might not make it, but he decided the potential benefits outweighed that risk for him in this case. He already had an account with IRA Innovations for $50,000 in cash, so he was well on his way to investing in the bank.

Here are the steps David went through to complete the process:

First, David requested a subscription agreement from the local bank. He then requested a Buy Direction Letter (BDL) from IRA Innovations. This is a form he completed to tell us what he wanted to do and how much he wanted to pay. In this case, he told us he wanted to purchase private stock in the bank at $2 a share. He purchased 12,500 shares.

After the BDL and the subscription agreement were complete, they were processed, and we then executed the agreement. We wired the $25,000 to the bank for the purchase of the stock.

The stock certificate for 12,500 shares was sent to IRA Innovations in the name of David’s Roth IRA: IRA Innovations, Inc FBO David Schaffer Roth IRA.

At this point, the investment was made, and David officially became the owner of stock in a private equity. It was important to watch things closely and keep up with any news regarding the bank since David had invested such an interest in it.

It turns out that four years later, a larger bank bought out the small, local community bank David held stock in. The bank did do well, and David was pleased to see that taking a risk paid off. The larger bank purchased the community bank for $8.00 a share, which was significantly more than the $2.00 per share David originally purchased.

Because of this gain, David decided to sell his stock, and he completed a sell direction letter. The stock was sold, and while David originally invested only $25,000 from his IRA, he ended up with $100,000 from the sale of the stock. This amount, which includes a $75,000 profit, was deposited into David’s Roth IRA cash account.

In this private equities investment success story, the investor took a risk on a small, new company that he had faith in. He waited for just a few years, and when the bank “made it,” he enjoyed the rewards as well.

IRA Innovations provides self-directed retirement account administration and education. As the experts when it comes to “alternative” investments including private equity, they can provide the necessary tools and information to get started with a real estate IRA.

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