Many of our clients are looking to include fuel and energy sources in their investing portfolio. We have seen an increase of investing in oil and gas, wind-mills, solar energy and more. For the purpose of this article, I will focus on oil and gas as an investment strategy for the self-directed IRA.
As with any investment, it is up to the IRA owner to determine whether his or her investment of choice is sound. With the increase in domestic drilling, fears surrounding the conflicts in the Middle East, and threats of an oil shortage, we have seen an increase in interest from clients who wish to invest in these products.
There are a couple of things to take into consideration before you use your self-directed IRA to invest.
Unrelated Business Income Tax (UBIT)
Be aware that you may have to pay UBIT, depending on whether it is a working interest or a royalty interest. You should seek financial advice before you make this investment. You may also research UBIT on the IRS.gov site under Publication 598.
Evaluate whether this is a good choice for your self-directed IRA.
These types of investments are allowable in a self-directed IRA; however there are tax incentives already in place with funds invested personally. Your financial adviser or accountant would be the best person to determine whether investing personally for tax incentives, or in the self-directed IRA for tax-deferred or tax-free investing makes more sense in your particular situation.
If you decide you wish to invest in Oil and Gas with your self-directed IRA the process is pretty simple:
- 1. Read the Joint Venture agreement from the Oil and Gas Company of your choice.
- 2. Make sure you have opened a self-directed IRA. We at IRA Innovations are here to help you with this. Visit www.irainnovations.com for more information or to contact our customer service team.
- 3. Complete and submit the Buy Direction Form to IRA Innovations. This will allow the supporting documentation for the oil joint venture agreement to be sent to the oil and gas company so that they may do the correct titling, as this will be in the name of the IRA.
- 4. Your shares are purchases. Any expenses for the venture will come out of the IRA and all profits from it will go back into the IRA. This will continue for the life of the well, and will be paid based on barrel production.
Many people believe that investing in oil and gas is very risky. Be thoroughly comfortable with this type of investment and know your risks before you decide to participate.