Partnering funds to invest is not a new practice. Savvy investors pool funds for a few reasons. Doing so decreases an investor’s liability should the venture run amok. Partnerships also help individuals invest in lucrative assets they’re unable to acquire alone. This strategy also works if you want to partner your IRA funds with other IRAs to invest.
As self-directed retirement plans become more popular, account owners learn a few of the lesser-known benefits these accounts present. Often, people with self-directed IRAs use their retirement funds to partner with their own funds or even with another individual’s personal capital to invest. Partnering your IRA’s funds with a disqualified person is allowed by the IRS, provided the parties involved don’t participate in other prohibited transactions.
Partnering IRA funds with other IRAs to invest is one way self-directed plan owners can leverage buying power to acquire assets that earn tax-sheltered wealth for retirement.
Here’s How to Partner Your IRA Funds with Other IRAs
It works in the same way partnering does in any realm:
- The partnered IRAs take on the percentage of their stake in the asset.
- If your IRA funds 60 percent of the acquisition, the other IRA takes on 40 percent.
- Income and expenditures are allocated accordingly.
- Your IRA gains 60 percent of the income and pays for 60 percent of all expenses.
- It also incurs 60 percent of any potential losses.
Does this sound good so far? Well, here’s something that sweetens this deal even more: your IRA can partner with more than one IRA.
Partnering with Multiple IRAs
This opens the door for many possibilities, especially if your self-directed retirement plan has limited funds. Partnering helps leverage your buying power and allows you to take part in alternative investments to the stock market that hopefully produce a high ROI—thereby increasing your capital for future investments.
The more IRAs that participate in a partnership, the more the bullet points in the section above matter. The-more-the-merrier cliché applies here in an oxymoron-ish kind of way, because multiple IRA partnerships decrease two things (which balance each other out):
- The gains produced by the investment are commensurate with the percentage spread. This means your IRA only reaps the rewards of the percentage it owns. Don’t let this deter you, though. The more buying power you have, the bigger the investment potential.
- Having multiple IRA partners also decreases the liability your IRA suffers should the investment prove to be a dud. So, while your earning potential isn’t as great as it is when you own the whole asset—your losses won’t be so devastating, either.
As you can see, there are a few perks to partnering your IRA funds with other IRAs to invest.
Final Words on Partnering Your IRA Funds with Other IRAs to Invest
It’s also important to seek advice from a financial professional such as your CPA or an attorney. These people can help you navigate some of the complexities that partnerships sometimes encounter and to avoid prohibited transactions in your IRA. They can also ensure the partnerships are structured properly to protect your hard-earned retirement funds.
If you’re interested in learning more on partnering your IRA funds with other IRAs to invest, contact Advanta IRA today. Our team serves many clients who participate in these transactions. We are familiar with the nuances of partnering IRA funds and can help you understand if this strategy is a good fit for your overall retirement planning goals.
Advanta IRA offers a plethora of free resources to help you learn more about the power of self-directed retirement accounts as well as health savings and education savings accounts. Check out our event page and attend a free webinar or listen to some of our alternative investing podcasts that cover self-directed strategies, weekly market recaps and more.
Additional reading about investing with self-directed IRAs:
This article was first published on March 24, 2018 and has been updated with current information.