Self Directed IRAs Offer a Creative Option for Raising Capital, Investing in a Business/Franchise and creating diversification opportunities for investors
Savvy business owners and entrepreneurs are turning their capital raising efforts upon the self-directed IRA market. Conversely many investors, tired of watching their retirement portfolios fluctuate, are seeking diversification through alternative strategies for balancing their retirement portfolios. The total reported assets in the IRA market was $4.23 trillion in 2006 (according to Employee Benefit Research Institute (EBRI)) and many account holders are looking for ways to truly diversify, and invest in what they would feel comfortable.
Since the creation of the IRA, designed as a self-directed retirement plan, in 1974, Americans have been able to invest their tax-deferred retirement accounts in almost any asset of their choosing. But somewhere along the way, one of the most important concepts of owning an IRA was lost, the concept of self-directing. Rules governing IRAs were not created to constrain investors to stocks, bonds, and mutual funds. It was intended for individuals to be able to invest in an abundance of assets that make sense for the individual investor.
Yet, only a fraction of Americans are aware of this important intent of the IRA. Aside from a few specific investment types, per the Internal Revenue Code (IRC), which exclude life insurance and collectibles to be held in a retirement account, the list of possibilities are virtually endless.
Some examples include Businesses, Franchises, Start-Ups, real estate, secured notes or unsecured notes, tax liens, farm animals, domain names, airspace rights and precious metals like gold and silver to name a few. If the IRC rules and regulations are adhered to, the imagination becomes the only limitation.
If you plan to pour your time and effort into your business, why not consider putting your tax-deferred retirement account in as well. Or if you are looking for financing/investors for a new or current business venture, self-directed IRAs just may be the answer. Note: this is not the same as taking a loan from your 401k or using a 60-day rollover to make an investment.
A self-directed IRA is no different from any other retirement account. The self-directed IRA follows the same rules and guidelines as any IRA or 401(k) in regard to such rules as contributions, penalties, tax status, and distributions. The term ‘self-directed’ indicates that the owner has more choices and flexibility for investment choices. Note: Some financial firms may offer self-directed IRAs, but may typically limit the scope of investments to the investment products they offer. A true self-directed IRA allows for alternative investments to be held inside the account allowing for tax benefits on income, dividends, and gains.
If you are one of those investors who wants to explore true diversification, you may explore the possibilities of investing your retirement funds on a tax-deferred or tax-free basis into:
- A private business;
- An existing business;
- A franchise;
- Private company;
- Closely-held enterprise;
- Loaning money to a private company or;
- Any other allowable alternative investment
It is also important to note that you may be able to attract other self-directed IRAs for your business venture, structured properly you may be able to have friends, colleagues, and family use their retirement accounts to invest or provide capital for your business.
A word of caution though, alternative investing through self-directed IRAs typically requires additional knowledge of the rules, regulations, and guidelines set forth by the IRC. It is not the same as sitting at your computer and purchasing common stock, wherein all the rules, regulations and guidelines are more straightforward (generally due to the streamlining done by the public stock registration process). The best chance of succeeding in the world of alternative investing is to work with professionals that are knowledgeable, specialize in the industry and take the extra steps in making sure that the investment through a self-directed IRA is in compliance with the guidelines, laws, rules and regulations.
About Innovative Advisory Group: Innovative Advisory Group, LLC (IAG), an independent Registered Investment Advisory Firm, is bringing innovation to the wealth management industry by combining both traditional and alternative investments. IAG is unique in that they have an extensive understanding of the regulatory and financial considerations involved with self-directed IRAs and other retirement accounts. IAG advises clients on traditional investments, such as stocks, bonds, and mutual funds, as well as advising clients on alternative investments. IAG has a value-oriented approach to investing, which integrates specialized investment experience with extensive resources.
For more information, you can visit www.innovativewealth.com
Disclosure: This article is for educational purposes only. There is risk associated with all investments, both traditional and alternative investments. Not all investments are for all investors, and appropriate portfolio planning, whether traditional or alternative is required prior to making any investments. Classification of risk for an investment is based on many factors, some of which is inherent in the investment and some of it is based on the portfolio and plan of the investor. Please seek professional advice prior to planning any investment whether traditional or alternative. Nothing in this article implies, either explicitly or implicitly, that IAG or the authors of this article is soliciting investors for any specific type of investment, nor is IAG or the authors providing any form of investment advice through this article. Not all information contained within this article may be applicable to all readers, and IAG shall not be held responsible or liable for any use of the information with or without seeking knowledgeable professional advice.