Using a self-directed IRA to invest in private companies

Increasing Investments into Private Companies

New capital in pre-IPO companies is up over 77%

The vast majority of IRA holders invest in public equities through mutual funds, while others select individual stocks to hold in their retirement portfolio. However, there is a growing segment of investors who wish to access investments not offered by Wall Street brokers or the traditional markets.

Investments into private placements are booming – new capital in pre-IPO companies is up over 77% from 2010 according to the National Venture Capital Association. Based on stronger balance sheets, other companies are accessing private capital to expand production or explore new markets. Through a self-directed IRA, investors can take advantage of these growing investment trends through private placements.

Why Invest Via IRAs?

Private placements typically do not provide easy liquidity for an investor, at least in the short term, but this lack of liquidity can result in higher yields for the investor, a great trade-off for many IRA holders. Should a private company later go public, the tax-deferred nature of IRAs can keep the funds working without taxation until distribution. Within a Roth IRA, future distribution may be tax-free.

Be Aware

While investments into private companies that are taxed, such as a C Corporation, will generally not create a tax liability within an IRA, this may not be the case when investing in a pass-through tax entity such as an LLC (S Corporations are unable to take IRA investments). As always, speak with a tax adviser about the tax implications of investing an IRA in an operational business with a pass-through tax structure as an Unrelated Business Income Tax liability may accrue. NuView is not a fiduciary and therefore cannot offer investment advice.

Participate in Private Placements

Step OneSet Up
1) Set up and fund a self-directed account with NuView IRA

Step TwoIdentify
2) Find a private company in need of investors

Step ThreeSubmit
3) Submit a Purchase Authorization and the loan documentation

My IRA has Stake in a Private Company – What’s Next?

Any dividends or earnings can be re-invested

As with all investments, the IRA holder should continue to monitor the performance and appropriateness of their investments. At the end of each year, the accountholder will provide a third-party valuation of their investment to NuView to meet the requirements of the IRS.

Any dividends or other earnings from the investment belong to the IRA, which can be re-invested as directed. If the funds are invested into an operating company that is a pass-through tax entity, Unrelated Business Income Tax, or UBIT, may be accumulate and must then be paid by the IRA. As always, a tax advisor can provide more information on specific investments.

Open an account today!