Private Placements in Your Self Directed IRA
Utilize Your Knowledge and Expertise to Prepare for Your Future
Very few Americans realize that they have the option to self direct their IRAs to invest in private entities. Most investors believe that their only IRA investment options are bank CDs or the stock market. If you currently are a successful private entity investor, or just looking to diversify your retirement portfolio, the combination of private entities with your self directed IRA can be very powerful.
A private entity is any type of business that is not publicly traded on a listed exchange such as NASDAQ or the New York Stock Exchange (NYSE). These business entities include a limited partnership, limited liability company (LLC), limited liability partnership (LLP), C-Corporation/Private Stock or Land Trust.
Companies which require operating capital or mezzanine financing, prior to going public through an initial public offering (IPO), typically issue private stock. The private stock is offered through private placements under which issues of stock (in many cases in certificate form) are sold to qualified or accredited investors.
Historically, investments in private non-publicly-traded entities have been the backbone for American economic growth. Companies such as Microsoft and Intel were once private entities that went on to become pillars of the American business landscape. One of the greatest tools available to those investors who are comfortable with investments in private entities are government sponsored retirement plans.
The tremendous advantages IRAs and other retirement plans offer Americans include the following:
- The power of compound interest
- Reduction of taxable income
- Asset protection
- Estate planning
Click for more information on the Benefits of a Self Directed Individual Retirement Account (IRA). However, not all self directed IRA custodians are the same! See Why Equity Trust is the Preferred Choice.
Please refer to Private Placement Investment Procedures and to the Private Placement Direction of Investment Guide.
Invest with knowledge, expertise and comfort
The greatest advantage IRAs hold for investors in private entities is that they can apply their knowledge in investment areas in which they are already successful (and comfortable) to their IRAs and other retirement plans.
Clients at Equity Trust may use their retirement funds to purchase private placements backed by real estate or other assets including:
- Limited Partnerships
- Limited Liability Companies
- Limited Liability Partnership
- C-Corporations/ Private Stock
- Land Trusts
Your Rate of Return is Based on Your Knowledge and Expertise
When you combine the advantages of an IRA with your knowledge of private entities, you have the ability to compound investments tax free/deferred. The rate of return on your investments will be based on your knowledge and expertise in private entities, not on the ups-and-downs of the stock market.
What kind of wealth can be created for you and your family with an Equity Trust self directed private entity IRA? Find out with the Equity Trust Self Directed IRA Wealth Calculator.
Why haven’t I heard of this before?
Because most custodians do not offer truly self directed IRAs. They will only allow you to invest in their approved list of investment options. If you have an IRA at a bank, you will probably be limited to CDs; if at a brokerage firm, to stocks, bonds and mutual funds.
Are there any downsides?
There are not any downsides per se, but there are certain types of transactions that you can not perform through an IRA. Basically, the IRS prohibits “self dealing,” which are investments in which you or your family members of lineal descent have prior ownership. (Click for more information on prohibited IRA transactions.)
Additionally, no investment (aside from FDIC-insured deposits) is guaranteed and investing in private entities is not for everyone. However, most successful investors in private entities feel that their investment risk is much less than that associated with investing solely in the stock market.
In many cases, private stock is exempt from registration under the Securities Act of 1933. Please consult with legal professionals to ensure proper compliance with all federal and state securities laws.
Private stock is not traded on public markets and the company issuing the stock usually acts as its own transfer agent, which could restrict the sale or transfer of the stock. It is very important to review these provisions in the offering circular/prospectus before making any investment decision.
Your self directed IRA may invest in limited liability companies. The limited liability company may make any type of investment, as long as it adheres to the same prohibited transaction rules set forth in IRC 4975.
Prior to an investment being funded, Equity Trust requires the completion of the Private Entity Direction of Investment form.
While IRAs are eligible to invest in private stock/c-corporations, limited partnerships and limited liability companies, IRAs are not permitted to invest in Subchapter-S corporations (see IRS letter rulings).
It should also be noted that, if you choose to invest in a flow-through entity such as a limited partnership or a LLC that is classified as a flow through entity, the use of debt financing might cause the occurrence of unrelated business income tax (UBIT). If the flow-through entity produces more than the current $1,000 exclusion, your IRA will be responsible for payment of UBIT. (Click for more information on UBIT.)
Please note: As a passive IRA custodian, Equity Trust does not offer any investment advice nor does it sell any private entity investments. Clients contemplating any investment in a private entity should ensure that they have performed necessary due diligence and sought out professional advice before investing.
Our Clients are in Complete Control
The most important thing to remember is that:
- With an Equity Trust self directed private entity IRA, the type of investments you make will be exactly the same kind you presently are making for your personal account. The only difference is that the profits in your IRA investments are tax free/deferred.
- You need Equity Trust to serve as your IRA custodian because the IRS does not allow you to personally “touch” your IRA account. Our truly self directed IRA program gives you complete control and flexibility.
As a passive custodian, Equity Trust does not sell investment products or give investment advice, so you will never have to worry about conflicts of interest or high-pressure sales tactics.
How can I learn more?
For more information on Equity Trust self directed IRAs, please see Self Directed IRA Investments at Equity Trust - FAQs.
How do I get started?
If you are ready to take control of your retirement funds with a self directed real estate IRA, please see the following links for more information:
How to open an Equity Trust Self Directed IRA. How to transfer or rollover an existing retirement account into an Equity Trust self directed IRA.
Please refer to our Step-by-Step: Private Entity Direction of Investment Guide.
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