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Investor Insights Blog|Investing in Private Entities with an IRA: How it Works

SDIRA Concepts

Investing in Private Entities with an IRA: How it Works

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Many investors think they’re limited to stocks, bonds, and mutual funds when it comes to saving for retirement. However, you have the freedom to invest in companies that are private entities, LLCs, placements, other startups, and more, with a self-directed IRA.

Given the volatility of the stock market, investors seeking diversification from the public markets may find a self-directed account to be beneficial. Investments grow in a tax-deferred or tax-free environment and you have the ability to choose exactly what you invest in, putting you in control of your future wealth.

Here’s how it works.

How to Invest in Private Entities with a Self-Directed IRA

To get started, open and fund your Equity Trust account. You can do this online through myEQUITY, or by contacting us to have an Account Executive walk you through the process.

Next, you’ll identify your investment opportunity in a private entity such as an LLC, LP, or C-Corp. It’s important that you perform due diligence on your potential investments before making any decisions.

These are the steps to completing an investment using your account:

Step 1: Request Funds and Direct Your Investment

  • Complete and submit the Private Equity Direction of Investment Form, which can be obtained through the online account management system myEQUITY
  • Send supporting documentation for LLC, LP, or C-Corp (a list of supporting documentation can be found in myEQUITY)
  • Sign documentation and ensure proper titling before sending. The correct titling is: Equity Trust Company Custodian FBO [Account name IRA, Roth IRA, etc.]

Step 2: Equity Trust Processes Your Investment Direction and Remits Money as Directed

  • Your Equity Trust account now owns the investment
  • Send original supporting documentation to Equity Trust for safekeeping

Step 3: Manage the Investment with Your IRA

  • You must remain at arm’s length from your IRA investment at all times and avoid prohibited transactions
  • Consult with your tax attorney or financial professional or reference IRS Publication 590

What’s next?

The final step is acting on your exit strategy.

Some examples of exit strategies could be selling the investment, taking a distribution, or passing the account to a beneficiary.

Watch this video for more on how Private Entity Investing Works in a Self-Directed IRA:

1

Can my IRA invest in a newly formed entity that will invest in real estate?

Yes. Investments in newly formed private entities, such as limited partnerships, limited liability companies, C corporations or land trusts, are permissible under the Internal Revenue Code, with the exceptions of subchapter S corporations.

2

Can my IRA purchase an interest in a subchapter S corporation?

No. IRAs are not qualified as investors in subchapter S corporations.


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