Many investors are diversifying their portfolios by adding private equity to their investment mix. Platforms like MicroVentures are facilitating this direction by providing investors access to a range of early- and late-stage private companies at low minimums. But what many investors may not know is that they can use funds from their IRA accounts to make these investments in private equity.
While private equity investments are risky, if you’re investing in these types of investments, it makes sense to look at the potential tax benefits of investing with your IRA. Depending on the type of IRA, any returns on your investment may go back to your IRA tax-free or tax-deferred. As a result, the difference between returns from investing with your IRA funds versus taxable funds may be significant, especially over the course of multiple years.
The private equity investment timeline is another reason to consider investing with your IRA. This option can work well for investors who want to participate in private equity opportunities but don’t want to tie up their taxable funds in illiquid investments. Your IRA funds may be a perfect fit for the longer-term hold often required for private equity investments.
With the implementation of our new Investment Profiles feature, MicroVentures provides a simple and seamless process to invest in private equity using your IRA. The first step is simply to create a profile specifically for your IRA account. You’ll provide account information and complete a brief financial questionnaire to make sure you understand the risks and to make sure private equity investments align with your investment objectives. We then help you take it from there.
The only stipulation is that your IRA must be designated as “self-directed,” which may require that you open the account – or rollover the account – to a custodian or trustee who is specifically authorized to serve as a third-party administrator for alternative investments. If you haven’t done that already, some examples of custodians we have worked with in the past are PENSCO, IRA Services, and Millennium. Whether you invest in private equity or not, the “self-directed” designation will provide you with new levels of flexibility in determining how to invest your retirement funds.