Private Placements – Private Equity

Sophisticated Investors Flock to Private Equity Investments in IRAs

Private equity is a unique investment that can fit well in a self directed IRA. It is important to note that these types of closed investments are usually only open to Accredited Investors. Private equity can invest in a wide array of options including, closed business stock, venture capital, or a pooled investment vehicle like an LLC, LP, or hedge fund. Inside each company, they may be investing in real estate, private lending, or purchasing companies. Because of each deal’s complexity, it is essential to discuss these investments’ pros and cons with your financial or tax advisor.

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Investing in Private Equity With a Self Directed Retirement Plan

A self directed retirement plan can invest in most private offerings. These offerings include private equity/private stock. When investing in private equity with a retirement account, the dividends and gains from investments are paid directly to the retirement account. These dividends are either tax-deferred (Traditional IRAs) or tax-free (Roth IRAs). There can be capital calls with these types of investments, so please understand the investment and how it affects your IRA.

Investing in private equity within an IRA has been an option since 1974. However, the vast majority of investors are not aware of this option. This unawareness is due to traditional retirement account custodians limiting investments to Wall Street stocks, bonds, and mutual funds. Midland allows investors to choose alternative assets such as real estate and private equity investments to build their wealth.

Easy Investment Process for Investors of Private Equity

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Who Can Invest in Private Equity With a Self Directed IRA?

Typically, these alternative assets are limited to accredited and institutional investors. Accredited investors are those proven to be financially fit to invest large amounts of funds over a long time without sustaining a substantial hardship if the asset is fruitless. These funds may include investing in startup businesses, developing technology, gaining capital to improve an existing entity’s viability, and even acquiring an existing business.

Accredited investors can use their self directed IRAs and other retirement plans to invest in a private stock. This strategy allows investors to build tax-sheltered income in their accounts. Midland works closely with clients investing in private equity to facilitate the purchase in compliance with current rules and regulations. Our ability to do this maintains the account’s tax-advantaged status. It enables our clients the precious time to identify holdings they believe will increase their potential for building retirement wealth.

Learn about the SEC’s new accredited investor status.

If you’re looking to take advantage of investing in private equity using funds from your IRA, call our team of IRA specialists today!

View a case study in which a Midland client invested in private bank stock. Get an idea of what you can accomplish in your retirement account with private placements.

Private Equity FAQs

Why do I need to use Midland or another custodian?

Because IRAs have tax advantages, the IRS requires an intermediary between an IRA holder and their account to provide tax reporting and record keeping. Most banks and brokerage firms perform this role when you buy the products they sell or publicly traded investments. Because of valuation and administrative issues, these companies do not allow for private offerings. Midland specializes in the administration of such assets.

Are there entities not allowed in an IRA?

Yes. A client cannot invest in an S-Corp within their IRA. If an IRA were to invest in an S-Corp, the corporation would lose its status..

Does Midland endorse private offerings?

We are a neutral third party that provides record-keeping   IRA administration for our client accounts. We do not sell, endorse, or promote any investment. Our clients determine their investment of choice, and we facilitate the purchase. This process allows the account to keep its tax-advantaged status.

How are the IRA investments titled?

The IRA is a separate entity from that of the account holder. When an IRA invests, the investment is always titled to the IRA using the IRA’s tax ID.

How can my account be used to invest in a private business?

Investing with an IRA is quite flexible. Depending on the investment, it may be structured in many ways, including private stock, LLC interests, and debt instruments like promissory notes. Always refer to your professional and legal advisers to decide which structure is best for your investment. IRAs can invest in C-Corporations, LLCs, LPs and many other types of private offerings.

What is Midland’s/Custodian’s role after funding the investment?

Midland will send and receive any funds between the IRA and the investment. We will request a Fair Market Value (FMV) update annually and update the account according to the FMV provided by the manager.

What should I watch out for?

In some instances, like investing in operating businesses and leveraged investments, taxes may apply. Unrelated Business Income Tax (UBIT) and Unrelated Debt-Financed Income (UDFI) should be considered with certain business structures. It is best to consult your professional advisors to determine if these taxes will affect your IRA investment.