Three years after the initial JOBS Act became law, perhaps the most awaited for provision has come to fruition. While the JOBS Act has several elements that affect venture capitalists as well as those seeking investors, the most exciting stipulation was the anticipated allowance for average Americans to gain access to some of the same investment opportunities as the elite.
In the past, only accredited investors (with large net worths and proven financial security) were able to participate in private stock and equity options. Now, thanks to the SEC rulings in March 2015, under Title IV of the JOBS Act, average American citizens are eligible to participate in these offerings. If you are a self-directed IRA owner, these options are permissible alternative investments you can add to build your retirement portfolio.
How It Works
Title IV allows non-accredited investors access to these options by initiating what they are calling Regulation A+, wherein the SEC has deemed two tiers that dictate this category.
Tier I allows both accredited and non-accredited investors to join the crowd in funding companies seeking up to $20,000,000. Under this tier, the state pre-emption is replaced by state-related requirements and review—with the elimination of formal audits and yearly reports that will be required for companies with offerings that fall under Tier II.
Tier II allows a ceiling of up to $50,000,000 in investment offerings, as well as the removal of the Blue Sky Law, which mandates the registration of these options in each state the securities are sold. However, even with the pre-emption of the Blue Sky Law, Tier II companies are required to perform financial audits and meet requirements of annual reporting.
Title IV allows non-accredited investors to invest up to 10 percent of their yearly net income or worth in these crowdfunding opportunities. This rule should be considered a thankful protective measure as it’s meant to prevent individuals from losing it all in one potentially unfruitful investment.
Crowdfunding options can be held within your self-directed IRA. Self-directed account owners have incredible freedom in choosing alternative investments such as these to build wealth inside their retirement accounts. However, it is imperative you perform due diligence and also to consult with a trusted CPA, attorney, and other financial professionals to ensure your transactions fall within the guidelines for IRA investments as required by the IRS.
Please note that while we have provided you with a simple explanation of what the JOBS Act Title IV allows, we encourage interested investors to read more in-depth information that can be found in the following articles:
If you would like to learn more about how you can use a self-directed IRA to acquire alternative investments to build retirement income, please contact us for more information.