Using a self-directed IRA to invest in alternative investments

Turning to Alternatives

The opportunity to find a niche asset class can be compelling

The fastest growing segment of investments from 2009 – 2011 has been in alternative investments (McKinsey and Company, the Mainstreaming of Alternative Investments, June 2012) and there is no sign of this trend slowing. With traditional investors, alternatives include hedge funds, Real Estate Investment Trusts (REITs) and private equity. Within an IRA, the concept of alternatives can contain those assets, but the options are far broader.

NuView IRA clients self-direct into such alternative investments as new business startups, limited partnerships, joint ventures, and tax liens. While each asset class may offer differing risks and rewards, the opportunity to find a niche that an investor can understand and control can be compelling.

Case Studies

Timber, coffee, coconuts, and other agricultural products are increasingly drawing IRA investors. A recent NuView client directed his IRA to purchase land, then separately a third-party would have a tropical hardwood saplings plant on the land. The property is located in Nicaragua, and the land ownership is registered in the name of the IRA. He expects to gain appreciation for the property, with a nice payoff upon harvesting the trees when mature. All profits remain tax deferred in his account.

Other IRA investors prefer to establish a stand-alone LLC (checkbook control) with the ownership to be funded by the IRA. Drafted by a tax professional, the operating agreement provides the named manager the ability to open a bank account and make investments that are titled in the name of the LLC. It is the responsibility of the IRA accountholder to determine the legality of the structure and to ensure that investments are not contrary to the IRS and Department of Labor guidelines.

Why Invest in Alternatives within an IRA?

Self-directed IRAs offer clients the broadest range of investment options. While real estate, notes, private placements, and precious metals may be common investments within self-directed IRAs, the available investment options include many additional asset classes. Instead of listing specific asset classes permissible within IRAs, the IRS code only provides guidance on the asset classes prohibited within IRAs – personal life insurance and collectibles, which is defined as works of art, antiques, gems, stamps, coins, and alcoholic beverages. The IRS code’s listing of prohibited assets gives IRA owners the luxury and opportunity to invest in any non-prohibited asset class.

The IRA Purchase Process

Step OneSet Up
1) Set up and fund a self-directed account with NuView IRA
Step TwoIdentify
2) Identify an investment
Step ThreeSubmit
3) Submit a Purchase Authorization packet for NuView to execute

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