Can an IRA Invest in a Private Company?

can an IRA invest in a private company

When you open an IRA, you should understand the investment options available to you. Many Americans are aware that they can invest in stocks, mutual funds and bonds, but is investing in private companies possible with an IRA? If you have a retirement account, alternative assets can help diversify your retirement portfolio.

Unfortunately, few people seem to know about these alternative assets, which could explain why alternative investments are a small portion of the retirement account market. At Accuplan Benefits Services, we want to provide you with the information you need to make the most of your IRA and investments.

Can You Invest in a Private Company With Your IRA?

Yes, you can invest in a private company with your self-directed IRA. You can also choose to invest in start-ups, small businesses and real estate. By making an IRA investment in a private company, you can take advantage of more investment opportunities and diversify your portfolio. 

First, find the private company you want to invest in. As long as the business is not controlled or owned by you, your spouse, your descendant, your descendant’s spouse or any entity they control, you can invest in any company domestically or abroad. Your lawyer or broker, for example, cannot solicit you to purchase a share in their own company. However, you can invest in a fractional interest in an LLC, partnership or corporation. You can also choose to buy the private company.

Next, ask your custodian to make the investment. Note the counterparty and purchase price. If you are investing in a corporation, specify the number of shares. If you are investing in a partnership or an LLC, note the percentage of interest. Keep in mind that your IRA income represents your percentage of ownership. For example, if your IRA owns 20% of the company, your IRA should receive 20% of the income. After the transaction is complete, verify that it has been performed correctly. 

For tax reporting purposes, the private company’s management should provide the fair market valuation on an annual basis, and it will be sent to the administration firm of your self-directed IRA. 

Advantages of Investing in Private Companies

Many investors choose to open a self-directed IRA for the advantages this investment account offers, including tax advantages and portfolio diversification.

  • Tax advantages: A self-directed IRA offers the same tax advantages you can get from a standard IRA, such as tax-exempt or tax-deferred growth.
  • Portfolio diversification: Diversifying your portfolio can help mitigate the risk to your retirement funds. By investing in private companies, you can disperse your money into asset classes other than paper assets, such as bonds and stocks. This protects your savings from significant loss.
  • Growth potential: Private companies tend to have great potential for growth, especially start-ups. Compared to buying shares in a listed company, your return on investment can be higher, as there is more room for company growth. A private company is usually more agile than a PLC and can quickly change direction if concerns are raised.  

To enjoy these benefits, consider investing in private companies with your IRA. 

Difference Between Investing in Private Companies and Private Equity

Investing in a private company should not be confused with investing in private equity. Also known as investment in private placements, PPMs or private stock, you are investing in an entity that is privately held and not available to the public. Private company investments are a subset of private equity investments, and private equity is an umbrella term that covers investments in private companies, as well as other privately-held entities. 

Investments in private equity IRAs are typically made in:

  • Start-ups
  • Franchises
  • Partnerships
  • Private stock
  • C-corporations
  • Small businesses
  • Limited partnerships
  • Equity crowdfunding
  • Pooled investment funds
  • Privately held hedge funds
  • Limited liability companies (LLCs) 
  • Real estate investment trusts (REITs) 

With a self-directed IRA, you can invest in both private companies and private equity funds.

Restrictions on Private Company Investments for IRAs

Before you begin investing in private companies with your IRA, there are a few restrictions to consider.

  • IRA must be self-directed: Your IRA must be self-directed. Several investment companies allow you to invest only in investments allowed by their platform, which doesn’t include private company investments. That’s why we offer self-directed IRAs at Accuplan Benefits Services, so you can choose to invest in a private company. 
  • IRAs cannot be invested in certain assets: An IRA cannot own shares of an S corporation or be invested in private stock you own, antiques, firearms, life insurance, some precious metals or life insurance.
  • IRAs cannot be used for prohibited transactions: When you, a disqualified person or beneficiary, uses your IRA improperly, this is known as a prohibited transaction. For example, you cannot borrow the money from your self-directed IRA to loan to yourself or buy a property with your IRA’s funds for personal use.

Tips for Investing in a Private Company With IRA Money

If you want to invest in a private company with IRA money, follow the tips below.

  • Understand the limits: You need to invest according to IRS regulations. When you understand these regulations from the beginning, you can avoid any potential pitfalls.  
  • Transfer or roll over funds: If you want to invest in a private company, but you already have all of your funds invested in an IRA, you can transfer or roll over your funds to a self-direct IRA at Accuplan Benefits Services.
  • Know the risks: As with any investment, there are risks involved in investing in a private company with your IRA money. Being aware of the greater volatility associated with this investment can help you better weather the ups and downs.

Contact Accuplan Benefits Services or Open an Account Today

contact Accuplan Benefits Services

At Accuplan Benefits Services, we offer a self-directed IRA. With a self-directed IRA, you can invest in more than the conventional options like stocks, mutual funds and bonds. Instead, you can choose to invest in what you’re passionate about. As long as you follow all IRS guidelines for investing, it is typically allowed in a self-directed IRA. Some popular alternative investments inside self-directed IRAs include: 

  • Loans
  • Private equity
  • Gold and silver 
  • Cryptocurrency
  • Actual real estate, including rental and commercial properties

Investing for retirement how you want has never been easier. Open an account or contact us at Accuplan today.

Disclaimer: This content is provided for informational and educational purposes only. It is not intended to provide, nor should it be depended upon for legal, investment, accounting or tax advice. We do not make guarantees regarding the applicability of the above information to your situation.

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