Partnering Funds in a Self-Directed IRA
Partnering funds to invest allows you to pool funds with others to acquire assets you are unable to purchase on your own. Partnering is a great way for investors to participate in more lucrative opportunities. And, these partnerships can help decrease an investor’s liability should the venture run into issues.
Your self-directed IRA can partner funds to purchase a portion of an investment and to join larger investment groups.
You can partner your IRA funds with your personal funds, with another IRA, entity, or person (including a disqualified person or entity). Partnering funds with another party can help avoid the need for non-recourse financing, which can be difficult to get for your IRA.
How Does Partnering Funds in an IRA Work?
- The partnered IRAs/entities take on the percentage of their stake in the asset that they own. Income is earned and expenses are paid based on the percentage of ownership.
- It is possible to form a limited liability company (LLC) or a limited partnership (LP) which allows you to combine each partners’ funds into a single account. An LLC or LP makes the overall management of the underlying asset easier, and your IRA can simply own a percentage of that particular entity.
- If you are using your IRA to partner with disqualified persons, you cannot later sell your partnership interest to one of those individuals or have them sell their interest to your IRA.
If you are considering partnering funds to invest in your IRA, it’s important to seek advice from a financial professional such as your CPA or an attorney. These transactions can be complex, especially when disqualified persons are involved, and you want to make sure you follow IRS guidelines.