Investing through a Self Directed IRA is a great alternative strategy to diversifying your investment portfolio. Through a Self Directed IRA you can invest in multiple investments, including real estate, physical gold and silver, private placements, loans, and other non-traditional investment vehicles.
One investment vehicle that could have a big pay out is private placements. A private placement is ownership in a privately held business that is not traded on the stock exchange. Private placements can be LLC or corporations.
With a private placement they do not have the normal disclosure laws that a publically traded company is required to report. There are benefits and disadvantages to this. The disadvantage is that you need to do your own homework on the company to ensure that the company is legit and that investing in the company will be a good investment. The advantage is that by doing your own homework and getting in to an investment early you can hit the jackpot on a good investment that can pay out in large dividends.
If you are interested in investing in a private placement you need to align yourself with an IRA custodian that will allow you to do this type of transaction. Most IRA custodians only allow you to invest in publically traded stock. Our company allows you to take your IRA and invest in private placements.
Below are some other benefits of investing in a private placement:
• Allows greater diversification of your IRA
• Allows greater control on the investment choices you want rather than being bound by an IRA custodian that only allows stock and bonds.
• If you have knowledge of a new startup company you can get in early enough to make large profits
• Any growth or dividents grow tax deferred or tax free if you have a roth IRA
• Your IRA is able to to diversify into: Limited Liability Companies, Limited Liability Partnership, C-Corporations, and other non-traditional startup companies.
Below are some general rules to follow when investing in a startup company:
• Due to the tax nature of S Corps, your IRA cannot have any ownership in a S Corp. S Corps need to be owned by a natural person
• Your earnings could be subject to UBIT Tax (Unrelated Business Income Tax). For more information read What are UBIT and UDFI Taxes Associated with Self Directed IRAs.
• You cannot invest in a private placement that you already own.
• Ownership in the private placements needs to read NAME OF CUSTODIAN FBO___________clients name. You cannot have the ownership read your name individually.
• There can be restrictions if you are employed by the company or are a manager for the company.
• All income or dividend payments must go back to the IRA, not to you personally
If you would like more information on investing in private placements inside of an IRA feel free to contact me or comment below.
Author: Ben Barker, Self Directed IRA Professional