PRIVATE PLACEMENTS IN SELF-DIRECTED IRAs
Private Placements are a great example of the freedom that Self Directed IRAs give you.
Private placements—also called private stock or private equity—offer the opportunity to invest in privately held entities that are not sold in the open, public market. They often involve limited partnerships (LP), limited liability companies (LLC), and similar entities. These investments are offered to a small audience of investors.
These types of investments are not registered with the Securities and Exchange Commission.They typically are offered by privately held companies, partnerships, and small businesses—entities that often look to individuals, not banks, to raise the development capital needed to grow their businesses.
When you invest in private placements through a self-directed IRA, it may be a win-win situation: The business owner gains access to needed capital. You gain the potential to reap a higher return on your investment. You also gain the benefit of diversifying your retirement portfolio.
Your self directed IRA can invest in these private placements, such as:
- Limited Liability Companies (LLC)
- C corporations
- Limited Partnerships (LP)
- Pooled investment funds
- Hedge funds
- Small businesses
- Equity crowdfunding
- Convertible notes
- Land trusts
How Do I Invest in Private Placements with a Self-Directed IRA?
- Open an account with IRA Resources.
- Fund the account with a contribution, fund transfer, or a rollover from another account
- Do your due diligence on the proposed investment
- Download the Private Placement Buy Direction Letter to have IRA Resources purchase the investment on behalf of your account
Important Reminders About Private Placements
Private placements are offered without some of the protections—such as disclosure requirements—that apply to investments that are registered with the SEC. This makes it even more important that you pay attention to the details and to talk with a qualified legal or investment advisor. Here are few things to look out for:
- Before lending money or investing in a business, do your due diligence. A successful investor is an informed investor.
- Ask if the investments puts limits on how long investors have to wait before they can sell or withdraw their funds. If you are close to retirement or to age 70½, make sure that this will not interfere with taking your required minimum distributions to avoid penalties.
- Find out if earnings from the entity are taxable to the IRA, even if they are not paid out.
- Find out if your state considers LLCs to be securities; in this case the entity will have to meet the standards of securities offerings.
For more information on how to invest in private equity with your IRA, please call us at 888-322-6534.