Self-Directed IRA holders tend to most commonly invest in Real Estate within their accounts. However, did you know that your self-directed IRA can fund a privately owned business? Though providing private capital for companies is oftentimes a more difficult investment to quantify compared to real estate or the stock market, it could prove to be profitable nonetheless. A few options for consideration in that venue may include: opening your own new company, equity investment into an existing business, or purchasing an existing franchise.  The ability to decide where and how your self-directed IRA will be invested does allow you the flexibility to consummate the investment at your own pace. For self-directed Roth IRA’s, beneficiaries are able to utilize the tax-free gains to further grow their self-directed retirement account balance.

While making a private equity investment into a business with a self-directed IRA is less traditional compared to other investment options, the I.R.S. prohibited transaction rules are still applicable. If a beneficiary of the self-directed IRA violates the prohibited transactions rules, it may result in devastating federal income tax consequences. If a beneficiary invests in an entity that is owned by a spouse, parent, child or grandchild this would constitute an I.R.S. prohibited transaction, making the entire amount of the investment subject to early distribution plus penalties. To safeguard against prohibited transactions, self-directed IRA custodians help account holders stay in compliance with these rules. Custodians also assist with account disbursements for investments, account recordkeeping, however, as a third party administrator they do not provide any investment advisement.

Tags: self directed IRA, self-directed IRA, self-directed IRA's, self-directed retirement account