Using Private Stock with Self-Directed IRAs

One of the most attractive aspects of using Private Stock with Self-Directed IRAs is the diversification it brings to your retirement portfolio. The IRS does not put many restrictions on the assets that are allowed in your Self-Directed IRA—life insurance, jewelry, collectibles and some precious metals are not permissible—but your custodian might not give you access to the widest range of investments.

With Self-Directed IRAs, you open yourself to alternatives like real estate, tax liens, precious metals and, of course, that asset class that is usually available only to the wealthy: private equity.

It is a basic tenet of investing that you never put your money into anything you do not understand. So, here is a primer on using Private Stock with your Self-Directed IRA. Your custodian will fill in any blanks and help you get started:

How does private stock differ from common stock?

Unlike common stock, private stock cannot be purchased by the public on the open market. Typically, the offerings are made to pre-qualified individuals, and these offering must comply with the securities Blue Sky laws in the state in which they are issued.

While publicly traded securities are subject to public disclosure laws, private equity is not. This means that private equity investors must utilize their research skills, personal knowledge, and experiences before choosing a private company.

Be sure to study the offering materials carefully and seek out professional help if you are not clear on any parts of them.

What are the benefits for the investor?

Private Stock with Self-Directed IRAs provide the same tax advantages as Traditional or Roth IRAs. Furthermore, as mentioned earlier, investments in private companies add true diversification to your retirement account.

From an investment standpoint, private equity can be financially rewarding. According to recent studies, private equity outperformed the Standard & Poor’s 500 Index by over 5% from 2005 to 2015. But even though it diversifies your retirement savings and can be quite lucrative, it is critical that you understand where private stock fits in with your risk tolerance.

Are there risks associated with private stock?

There are risks with every investment. Even certificates of deposit have inflation risk (your interest rate is lower than the inflation rate) and interest-rate risk (you are stuck in a long-term CD when rates go up). So, “risk-free” does not exist in the world of investing.

But, those investing in Private Stock with a Self-Directed IRA will be raising their risk profile. The higher risk is offset somewhat by the possibility of a higher reward, but it is still important that a portfolio that contains private equity should be balanced with more conservative investments.

Be sure to follow the rules

Aside from the limits and rules that govern all IRAs, here are some rules specifically for investing in Private Stock with your Self-Directed IRA:

  • The Self-Directed IRA, not the IRA holder, is the owner of the private equity
  • Your Self-Directed IRA cannot purchase private stock that you already own
  • The Self-Directed IRA holder participates on behalf of the stock that the IRA owns
  • All investment earnings must flow into the Self-Directed IRA account
  • Disqualified persons, which includes the Self-Directed IRA holder, may not be employed by the company

While this list of rules is not all-inclusive, it should prompt you toward due diligence before you invest.

Purchasing private stock

Investing in Private Stock with a Self-Directed IRA is not all that difficult. Open an account with a reputable and experienced custodian. Identify the business you want to include in your portfolio. Direct your custodian, using a buy direction letter, to purchase the shares on behalf of your Self-Directed IRA. That is all there is to it.

At American IRA, we have the experienced professionals to make your private equity transactions go smoothly and quickly. With our simplified process, you can effortlessly diversify your Self-Directed IRA account with any private stock you wish to own.

For more information on purchasing Private Stock with Self-Directed IRAs, call us today at 866-7500-IRA (472) or visit us at

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