What are “Private” Investments in a Self-Directed IRA?

Self-Directed IRAs for Private Companies

It might seem strange now, but the world’s biggest companies were, at one point, private. Apple, Amazon, Google, Microsoft—they all had to get their start somewhere before going public. For early investors, these weren’t just investments of a lifetime, because they were so rare that many people will never see them in a lifetime. That’s why so many investors are interested in Self-Directed IRAs for investing in Private Companies. This is because they know what a powerful effect it can have on their retirement if they choose the right one.

But how does it work? And are you really guaranteed the success of Apple or Microsoft? Obviously, the questions require a little bit more digging. Here’s what you need to know about Self-Directed IRAs for Private Companies:

How Self-Directed IRAs for Private Companies Work

If you have a Self-Directed IRA, the process is relatively straightforward. You would fill out a buy direction letter to order your administrator. This will prompt the purchase of private stock shares on behalf of the IRA you hold. You’ll sign any relevant documents as “read and approved,” and then your administrator will purchase the shares into your IRA as directed. That’s about it!

Of course, this requires that you first set up a Self-Directed IRA with a Self-Directed IRA administration firm who offers these kinds of services. And that’s where American IRA comes in. Our experience with private company investing ensures that we can carry out buy direction letters on your behalf. This makes sure that the paperwork is all in order and that the private stock you want to keep in a tax-protected account is secure.

What are the Rules of Self-Directed IRA Investing with Private Companies?

While private company stock can be one of the most exciting ways to invest, it doesn’t mean that you can do anything you want with an IRA. A Self-Directed IRA has limits like any other retirement investment account. After all, one can’t enjoy the tax protections without some stipulations as to how those investments need to behave.

There are a few important rules to remember that especially apply to anyone using a Self-Directed IRA for Private Companies, including:

  • Avoiding prohibited transactions. You can’t invest in a private company owned by a disqualified person, managed by a disqualified person, or controlled by said person. A disqualified person includes a spouse, for example.
  • Any income that is paid to your IRA should be according to the percentage of the ownership. In other words, if your IRA owns 20% of a company, you should then receive 20% of the income.
  • The company management is required to provide a Fair Market Valuation every year. This must also be provided to American IRA, or your appointed Self-Directed IRA administration firm.

Next Steps

While these rules might sound harsh from the outside, they are actually quite routine for anyone using a retirement account in this way. For many people, these rules are automatically fulfilled—they just don’t always see the work that goes into it. That’s why it’s so critical that you work with a dedicated, experienced Self-Directed IRA administration firm when you do invest in private company stock with an IRA. This firm will be able to understand everything you need. They will not only help administer the account properly but will handle the paperwork in such a way that it should alleviate your concerns about handling that paperwork the right way.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at https://americanira.com/.


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