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Self-Directed IRA Concepts
Self-directed IRAs are tax-advantaged accounts for investing in assets in addition to traditional stocks and bonds. Many investors see the opportunity to invest in assets such as real estate, tax liens, purchasing notes, precious metals and more.
Self-directed IRAs allow you to build wealth for your future by investing in assets that you are familiar with.
But, what happens when you find an opportunity and you don’t have enough money in your IRA? Can you co-invest with your IRA?
Yes, partnering your self-directed IRA with another funding source is possible. Here are six possible ways you can partner your IRA funds to take advantage of that investment opportunity.
Although you are considered a disqualified person to your own IRA, it’s possible to partner with your personal funds to take advantage of an investment opportunity.
Your IRA would be responsible for expenses and receive income based on the percentage of the IRA investment.
Since an IRA is intended to benefit you upon retirement, this can be a slightly complicated option in terms of partnering your IRA. However, if you follow the self-directed IRA partnership rules and regulations regarding disqualified persons, it may be an option for taking advantage of an investment opportunity.
You can also partner your IRA with an investor’s funds outside of a retirement account. They can use personal funds to co-invest with your IRA.
Do you have an additional retirement account? If so, you have the option to co-invest that account with your IRA. If you choose to co-invest with a Traditional IRA and a Roth IRA, for example, the profits would be split between the tax-deferred accounts.
If you have a Health Savings Account (HSA) or a different small business account, such as a SEP IRA, SIMPLE IRA or Solo 401(k), you can also co-invest one or more of these accounts with your self-directed IRA to complete the investment transaction.
Although your spouse is considered a disqualified person when it comes to transacting on your IRA assets, it is possible to co-invest with your spouse’s IRA to purchase an investment.
For example, if you’re interested in using your IRA to purchase raw land or a house, but lack the amount necessary to do so, you have the option to partner with your spouse’s IRA to capitalize on that opportunity.
Did you know?
Even if your spouse is not working, they may still be eligible to have an IRA.*
Just as you have the ability to partner with a spouse’s IRA, you can partner with other investors’ IRAs. An important aspect of this partnering option to remember is that you must maintain the percentage of ownership for both expenses and profits for all transactions associated with the investment.
You want to invest in a residential property for $280,000 with your IRA, but your IRA only has $70,000 (25 percent). You could potentially partner your IRA with other interested investors who want to partner their IRAs with yours to purchase the property.
Your IRA will be responsible for 25 percent of the expenses incurred and will profit from 25 percent of the total sale price when the property is sold.
If the property sells for $400,000:
With a Coverdell Education Savings Account (CESA) you can save money for a child or grandchild’s qualified educational expenses. Because the annual contribution limit for a CESA is $2,000, investors who are looking to grow the account often look for co-investing opportunities. Option #5 is to partner your self-directed IRA with a self-directed CESA for your children or grandchildren.
Similar to co-investing with another individual’s IRA, you can also partner your IRA with an investor’s funds outside of a retirement account. They can use personal funds to co-invest with your IRA.
As always, it is recommended that you consult with your tax or financial professional before initiating any IRA investment strategies.
Download the complete guide to co-investing with a self-directed IRA today.
Can I co-invest other funds with my IRA to make an investment?
Can I transfer funds from a previously established retirement plan into an Equity Trust self-directed IRA?
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