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 these accounts offer more flexibility, they are a good option for those looking to fund a startup, grow their own 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 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 these accounts are 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. These accounts 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 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 accounts 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.
(Featured image by DepositPhotos)
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
MGM Resorts International bags partnership deal with MLB
MGM Resorts International is now the first official gaming and entertainment partner of Major League Baseball.
Google’s latest expansion plans include affordable housing
Google's latest development plans for Mountain View, California, combine a mix of office, retail, public space and housing, with affordable...
Here’s why you should pack the right travel socks
Traveling involves a lot of walking. Apart from wearing the right shoes, it’s also important that you protect your feet...
What types of investments can you make using a Roth IRA LLC?
Get more out of your Roth IRA LLC with this handy guide on what you can and cannot invest on.
Get lower hotel prices, better services with these insider tips
There are ways you can get better hotel prices and services when you travel. Take these tips from an insider...
Sponsored5 days ago
Cannabis retailer Choom secures leadership position with Ontario expansion
Featured4 days ago
4 tips to launch your marketing career with digital marketing courses
Featured5 days ago
Shanghai overtakes Hong Kong as the most expensive city in Asia for luxury
Auto4 days ago
Ford, VW discuss potential partnership after White House meeting
Business4 days ago
Select cannabis companies continue to flourish amid market downtrend
Business5 days ago
6 things to keep in mind before investing a penny in mobile apps
Auto4 days ago
8 reasons why bike-sharing startups are attracting investors
Business4 days ago
Here’s why personal space is a vanishing commodity on airplanes