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How Can Self-Directed IRA Investing Help You Raise Capital for a Business?

Have you ever wanted to use your retirement portfolio for investments that really matter to you? For instance, you may be interested in an upcoming business or have one of your own that you want to invest in. However, all of your savings are sitting in your IRA!

With a self directed IRA, you can choose where money from your retirement accounts is invested, and continue to enjoy tax-free or tax-deferred growth. Since this retirement account offers more flexibility, it is a good option for those looking to fund a startup, grow their own small business or buy a company.

Benefits of a Self Directed IRA

Here’s why you should consider using a self-directed IRA to invest in a small business:

  • Tax-Advantaged Growth – A self-directed IRA offers either tax-free or tax-deferred growth. With a traditional IRA, income and gains will be tax-deferred since this retirement account is funded with pre-tax dollars, while Roth IRAs give you tax-free gains since you’ve already paid income tax on contributions.
  • More Options & Control – Self-directed IRAs allow you to make investments in a wider range of asset types, since you aren’t limited to stocks, bonds and mutual funds. This retirement account can be used to invest in everything from real estate, precious metals and tax-lien certificates to certain business types.

The main advantage isn’t just that you can invest retirement savings in your small business, but that friends, colleagues and certain family members can invest in it with IRA savings as well.

Self-Directed IRA Investing: What Types of Investments Can You Make?

Since IRAs are primarily designed to help you save for retirement, you may be penalized if the IRS suspects you’re using retirement plans for benefits in the present instead of the future, such as a salary paid to yourself.

You can use your self-directed IRA to invest in:

  • Private Businesses – Your retirement savings can help you set up a private business, or raise funds by suggesting that investors use self-directed IRAs.
  • Existing Companies – Self-directed IRAs can be used to buy existing companies. You will pay “unrelated business” income tax, but equity growth is tax-free.
  • Alternative Assets – Self-directed IRA owners can invest in a private company, franchise, closely-held enterprise or other allowable alternative investment.

Here are three basic situations to avoid:

  • General Partnership/S Corporations – These legal structures may seem the same as other companies, but they are governed by specific taxation rules.
  • Prohibited Transaction Types – Your spouse, children and parents cannot invest in your business with a self-directed IRA, but siblings, business associates and friends can.
  • Key Investor and Employee – If you own more than 50% of a business or have a controlling interest in it, you can’t use self-directed IRA funds to invest in it.

The bottom line is that you MUST check what’s allowed and what isn’t. Even a small error can lead to major penalties, so do your homework or consult an experienced financial advisor about applicable IRS rules and regulations.

At Self Directed Retirement Plans, we’re here to help. Get in touch with us today!

Also Read: Small Business Retirement Plans


Can a self-directed ira invest in a business?

Yes, it is possible to use your self-directed IRA to make an investment in a private company. Investing in start-ups, small enterprises, and real estate are further options. You can increase your investment choices and diversify your portfolio by making an IRA investment in a private company. This enables you to explore various growth opportunities and perhaps improve your entire investing plan.

Can a self-directed ira invest in an llc?

With a Self-Directed IRA, you have the flexibility to invest in private businesses or LLCs, which can yield significant returns. There is a wide range of private company options available for investment with your Self-Directed IRA, such as hedge funds, startups, REITs, and crowdfunding projects, to name a few.

What can a self-directed IRA not invest in?

Although there are numerous investment options available, it’s important to note that the IRS imposes certain restrictions on self-directed IRA investments. Specifically, the IRS prohibits investing your self-directed IRA in life insurance policies and collectibles, which it defines as art, antiques, rugs, gems, coins, stamps and alcoholic beverages.