Types of Portable Accounts

In general, defined contribution plans are portable. Defined benefit plans (pension plans) and flexible spending accounts are not portable. Many employers won’t allow an account to rollover if the employee is still employed by the plan sponsor. There are exceptions, so it is best to ask the plan sponsor.

Individual Retirement Account (IRA)
If a client has an established IRA, it can transfer to Equity Trust. An Equity Trust account can then fund alternative investments.

401(k) and 403(b)
401(k) plans are also known as an Individual 401(k) or Solo 401(k). These retirement plans provide the same profit-sharing advantages as a typical 401(k) with less complexity and lower costs.

403(b) plans are like 401(k)s. Public schools and certain types of non-profit organizations (501(c)(3)s) offer these plans.

Both of these plans can rollover into an Equity Trust account. Often, that depends on whether the account owner is still employed by the plan sponsor. The account owner should check with the employer about rollovers if still employed by the plan provider.

Savings Incentive Match Plan for Employees (SIMPLE)
SIMPLE plans allow contributions from the employer and the employee. These plans can rollover, except for Roth IRAs. However, if it is within the first two years of the owner’s first participation, money can only transfer to another SIMPLE IRA. After the 2-year period, they can transfer to other types of non-Roth IRAs.

Simplified Employee Pension (SEP)
A SEP is similar to a Traditional IRA in that a rollover from trustee to trustee can happen at any time.

Health Savings Account (HSA)
HSAs allow for contributions from the employer and employee. These contributions can transfer or rollover into another like account.

IRA Capital Raise Need-to-Knows for Financial Professionals

1. Most often, the held asset is titled in the name of the account owner. However, it should be titled “Midland Trust Company As Custodian FBO John Smith IRA #123456.”

2. Income, dividends, distributions, and payoffs should be sent to the client’s IRA at Equity Trust. These funds should not be sent to the account owner. All income and expenses for an investment held in an IRA must go back to the IRA.

3. Equity Trust is the custodian and administrator of the IRA. Equity Trust cannot review, promote, distribute, or endorse any investment.

4. Capital calls cannot be mandatory for IRAs. The IRA holder can elect to participate, though.

5. Equity Trust should be copied on all correspondence for capital calls.

6. The investment sponsor must inform Equity Trust if a prohibited transaction occurs. Prohibited transactions include IRA transactions with prohibited persons. Prohibited transactions also include those that benefit the IRA holder.

7. The investment sponsor must notify Equity Trust of any changes in contacts or company status with the investment.

8. Equity Trust does not provide investment, legal, or tax advice to IRA holders, investment sponsors, or providers.

9. Funding is frequently held up when signatures are missing on documents from the investor or investment sponsor.

10. No more than 25% of the total capital raised may be from ERISA-regulated accounts. IRAs are considered benefit-plan money, but are not covered under ERISA as long as there are no other ERISA funds in the investment pool. Once other ERISA funds are accepted, the IRA funds count towards the 25% limit. If you intend to accept any ERISA funds in your capital raise, consult with legal counsel on limitations and ERISA rules.

11. IRA investments may generate UBIT or UDFI, which affects the investor. Both UBIT and UDFI require filing form 990-T with the IRS. Equity Trust handles tax payments with the IRS as the custodian for the IRA. All taxes owed must be paid by the IRA, not the individual taxpayer. Funds must be available if UBIT or UDFI are expected.

12. The investor needs accreditation to invest but is unsure of their status. An investor is considered accredited if their net worth exceeds $1 million individually or jointly with a spouse. Accredited investors also include those with an annual income exceeding $200,000 individually or $300,000 jointly for the last two years with the expectation of earning the same in the current year. If investors are required to be accredited, an investor’s IRA has the same investor accreditation as they would personally. Learn about the SEC’s new changes to accredited investor status here.