In the United States, an IRA is an Individual Retirement Account which allows individuals to put aside money for retirement.
The context “self-directed” means that you have complete control over selecting investments made through your IRA. Given the tax benefits associated with these retirement accounts, directing your IRA to invest in alternative assets, such as private stock and secondary placements, offers a tremendous portfolio investing strategy.
Internal Revenue Service (IRS) regulations require that a qualified trustee, or custodian, hold IRA assets on behalf of the IRA owner. The trustee/custodian provides custody of the assets, maintains other records pertaining to them, processes all transactions, files required IRS reports, helps clients understand the rules and regulations pertaining to certain prohibited transactions, and performs other administrative duties on behalf of the self-directed IRA owner. Self-directed IRA custodians are equipped to handle the increased complexity of documentation required for transactions involving alternative investments.
The Internal Revenue Code does not describe what a self-directed IRA can invest in, only what it cannot invest in. Some of the additional investment options permitted under the regulations include real estate, stocks, mortgages, franchises, partnerships, precious metals, private equity, and tax liens.
Investing with a self-directed IRA isn’t much different than investing outside of an IRA. There are three simple steps:
1. Identify Your Investment
Once you find an investment that you are interested in, you need to send the offering documents to your IRA administrator so they can review the materials. They need to do their due diligence to make sure it fits the criteria.
2. Process the Investment and Request Funds
When your IRA custodian approves the investment you can fill out the investment information and submit it for funding. Once the forms are accurately completed, the funds will be sent from your IRA for the investment based on your specifications. All records pertaining to the investment (such as real estate deeds, original notes, operating agreements for LLCs) are retained by the IRA custodian.
Manage and Sell the Investment
Once your IRA owns the investment all expenses and profits related to the investment must come from and return to the IRA. Funds from the sale of the investment return to your self-directed IRA tax-free but remember investments held within your self-directed IRA are not guaranteed.
MicroVentures is an equity crowdfunding platform enabling individual accredited investors to make equity investments in startup and early stage businesses. MicroVentures conducts extensive due diligence and provides detailed profiles of each company we select as an investment opportunity. Potential investors are able to review the profile and solicit questions, which will be answered by one of our Series 7 licensed brokers.
MicroVentures pools the funds from each of the investors into a single limited liability company (“LLC”). Each of the investors becomes a member of the LLC allocated based on their percentage participation in the pooled fund. MicroVentures then uses the aggregate funds in the LLC to make an investment in the company or venture featured in the offering. The LLC is issued equity, a convertible note or other investment securities.
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