What if, years ago, you had invested in small, start-up, private companies like HP, Merck, IBM, Disney, or GE? These huge companies that are now public were once private entities that went on to become pillars of the American business landscape.
If you had invested in any of these before they “made it,” you would be very rich today. One way you could have done that would have been through a self-directed IRA.
Private or closed corporation stock offerings are not available to the public on the open market, and they are usually made to pre-qualified individuals. Through a self directed IRA retirement plan with IRA Innovations, we can help you fully maximize your IRA.
Private equity opens up some great new possibilities and can be very lucrative. According to the Private Equity Growth Capital Council, private equity outperformed the Standard & Poor’s 500 index by 5.2 percent during the 10-year period ending in 2015.
There are two primary ways your self-directed IRA can invest in private equity: through a fund, such as private equity funds and venture capital funds; or directly into a private company.
The second option is one of the best-known forms of private equity investing and involves buying a stake in young, growing companies. Many of these companies turn initially to individuals, or “angel” investors, for funding to add people, equipment, technology, expertise, and marketing.
But you can use your self-directed IRA to purchase ownership in private equities that fall anywhere from micro-businesses to billion-dollar global companies. There are also less conventional opportunities, such as land trusts and hybrid securities. Available investments include:
Limited liability companies (LLC) and limited partnerships (LP)
- Private common stock, preferred stock, options, rights and warrants
- Private hedge funds and funds of funds
- Private and non-exchange traded Real Estate Investment Trusts (REITs)
- Foreign private equity
- Exchange traded funds or funds of funds investing in privately-held companies
- Convertible notes
If this sounds like something you’re interested in, we always recommend doing a lot of research, starting with self-directed IRA guidelines. Private equity investments are not without risks, and they may not be appropriate for every investor. Private equity can add diversification to your investments, but it’s important to understand where and how it fits in terms of your risk tolerance. There may be a higher risk, but there may also be a higher reward. To offset that, it may be smart for you to be more conservative with other investments.
You will also need to consider the tax implications of investing in private equities. Returns from a self-directed IRA investment can be tax-deferred or tax-free, depending on the account type. But some investments made using self-directed IRAs, such as limited partnerships and limited liability companies may generate unrelated business taxable income.
While IRA Innovations does not offer investment, tax, financial or legal advice to our clients, we can provide options for fully maximizing your IRA through a self-directed retirement plan by investing in private equities.
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.
