How to Invest in Private Companies in Your Self-Directed IRA

We know how it sounds. “Private company investments in my Self-Directed IRA…isn’t that a little unconventional…”

On the surface, it seems exactly that: a little outside-the-box. But when you stop and think about it, most people put their retirement money aside in some kind of company investment—usually through publically-traded companies on the stock market. The idea of putting aside money in a private company is actually not as different as you might initially think.
Even so, most people are unfamiliar with making private company investments in their self-directed IRA, which is why we’ve put together a quick guide on how it’s done, why it’s done, and why it can potentially earn you astounding dividends as you plan for retirement:

First Things First: Legalities and Regulations

To answer any potential qualms you may have: yes, it’s perfectly legal to own private equity in a Self-Directed IRA. The IRS gives you plenty of flexibility for how you invest your IRA money, which means that it’s easy to actually own some private-held business property within a self-directed IRA, a 401(k), SEP or any type of retirement account that’s out there. Of course, it goes without saying that the business itself should be legal—and that includes a wide swath of potential companies, from farms and ranches to bakeries and restaurants. Really, any type of legitimate business can make a great investment within the confines of an IRA.

How to Get Started: Rolling Over to a Self-Directed Account

The first thing you need to do in order to invest in a private company through your IRA is to make sure that you have the proper IRA infrastructure in place. That’s a fancy way of saying that you should roll over to a Self-Directed account if you don’t already have one. For example, if you still have a 401(k) account from a former place of work, you can simply execute a tax-free rollover from a 401(k) to a self-directed 401(k) or even an IRA that allows for private investing. It’s not a difficult thing to undertake—simply get in touch with the company managing your 401(k) and let them know about your intentions.

Once you have that Self-Directed IRA ready to go, you’ll be able to use the money to make the investments of your choice. That includes making private equity investments.

Staying Diversified Through Private Investments

Although most people think of “diversified” as referring to a well-diversified stock portfolio, if you ask us, there’s nothing more diversified than a portfolio that includes investments in private companies. The success of an individual company doesn’t always rely on market factors—stock purchases, however, heavily rely on the climate of the market.

Staying diversified means including both kinds of investments in your retirement portfolio. And with self-directed IRAs, you have all sorts of options for other kinds of diverse investments, too, including real estate and precious metal purchases.

Why Make the Switch?

Rolling over a previously existing 401(k) to a Self-Directed IRA is a choice that you can make if you want to take charge of your retirement portfolio. For some people, their personal strategies dictate that they stick with the public markets. But private investments are a perfectly legitimate way to grow your wealth as well, especially the more experienced you are with private companies.

Interested in rolling over a 401(k) or simply getting started with a Self-Directed IRA so you can make private investments like the ones you read about here? Call us at 866-7500-IRA to find out more about making investments in private companies through an IRA, and what your options can do to help you diversify your retirement portfolio.