Investing in Private Placements with Self-Directed IRAs

Investing in private placements is common of clients with Advanta IRA who use self-directed IRAs and other plans to earn income towards retirement. These offerings typically include private equity and stock options reserved specifically for accredited investors who have large amount of investing capital and a net worth to sustain them if an asset fails to produce expected (or any) returns.

These sophisticated individuals can invest large amounts of money to acquire private placements, and that raised capital can fund start-ups, technology, expanding businesses, and more. In return, investors receive either equity or stock options in these up-and-coming ventures that are not available to the general public.

Within the last few years, crowdfunding options have become available to less sophisticated investors who do not fall into the accredited class. While there are still income requirements and caps on the amounts these less experienced investors can invest—there are platforms that allow individuals to participate in certain types of private placement offerings.

When entities or entrepreneurs seek private funding, they are able to gain the desired capital needed to fund their ventures without having to suffer through stringent requirements of typical lending institutions (who may or may not be willing to loan them money in the first place). They are able to control the amount of equity/stock given to investors, which allows them to maintain control over their enterprise. Investors are able to reap the benefits of success—which can quite often be substantial.

Private placements and crowdfunding options represent a few of the many diverse alternative investments permissible in self-directed IRAs. Any income generated from the investment flows directly into the self-directed plan on a tax-sheltered basis. Plan owners have the ability to choose their own assets, and there are plenty of private placements available to qualified investors.

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Investing in private placements include:

  • private stock, such as investing in a community bank
  • venture capital investments in a startup tech or medical firm, etc.
  • a group of investors pooling capital to make large real estate purchases
  • secured and unsecured notes
  • LLCs, LLPs, and trusts
  • movies, music…and much more

It is critical for anyone considering private placements to understand these offerings are often exempt from SEC registration and reporting requirements. These types of investments can pose several tax and structuring challenges. It is imperative that you seek advice from professionals (such as a credible CPA and a trustworthy attorney) familiar with the regulations governing these assets.

If you want to use self-directed IRA funds to invest, make sure you choose a self-directed plan administrator, such as Advanta IRA, who is experienced in the process and can ensure your account operates in compliance with IRS regulations. Every investment involves a certain amount of risk, but if your account is not structured correctly and fails to comply with IRS standards, you can be sure it will suffer penalties or even disqualification—regardless of how fruitful your investment may be.

Contact Advanta IRA today to learn more.

About Jack Callahan

Jack proudly earned his bachelor’s degree in finance and multinational business from Florida State University and his law degree from the University of Florida College of Law. He established Advanta IRA in 2003 and has steadily nurtured and grown the company and the team every year since. Prior to founding Advanta IRA, Jack delivered specialized counsel to real estate investors, small business owners, and real estate professionals on tax, legal and financial matters. As an industry expert, Jack is a frequent speaker on self-directed retirement plans. He is an accredited continuing education instructor for the Florida and Georgia Bar Associations, Florida and Georgia Real Estate Commissions, and The American Institute of Certified Public Accountants.