Private Placements: 
Using a Self-Directed IRA 
for Private Placements

What is a Private Placement?

A private placement - also called private stock or private equity - is an investment in a private entity (i.e. a company that is not listed publicly on the stock market). Investing in a private placement with a Self-Directed IRA is when an investor's retirement funds are placed into a privately held company such as an LLC, private equity fund, hedge fund, startup, or small business. By investing in a private placement, you can potentially help a private company obtain the capital needed to grow their business.

Investing in a private placement investment with a Self-Directed IRA is when an investor's retirement funds are placed into a privately held company such as an LLC, private equity fund, hedge fund, startup, or small business.

Private placements typically have a three-to-five-year holding period before an investor can cash out or liquidate their position. This holding period tends to encourage the use of IRA funds (rather than personal funds) for private placement investing. While it is important to have real-time access to personal assets, retirement assets can be "inaccessible" for a period due to IRS regulations. In most cases, the retirement funds may not be accessed until the age of 59.5. 

Like any investment, private placements may involve risk. However, savvy investors recognize that higher risks can potentially lead to higher rewards. Plus, the return on investment will flow back into the tax-advantaged Self-Directed IRA.

Investing in Private Placements with SDIRAs at a Glance

Invest In a Private Company You Believe In

There are many different types of private placements you can invest in with a Self-Directed IRA including hedge funds, LLCs, LPs, private equity funds, small businesses, startups, crowdfunding ventures, REITs, and more. 

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Potential for
High Returns

By investing in a private placement, you can help a private company grow, resulting in a potentially significant return on investment. Other benefits of investing with an SDIRA include diversification and tax-advantaged investing. 

Understand the Investment Structure

It's considered best practice to conduct due diligence to understand the private placement investment, its eligibility requirements, and potential risk involved.

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Simple 
Set Up

There are three simple steps to invest in a private placement with a Self-Directed IRA: open an account, fund the account, and place an investment.

Benefits of Investing in Private Placements 
with a Self-Directed IRA

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Diversification

An investment in a private placement with an SDIRA can diversify your portfolio with assets that are typically inaccessible in a standard IRA. Types of private placements you can invest in with your retirement funds include private businesses, real estate, and other non-publicly traded assets.

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Potential for Higher Return

Private placements have the potential to experience significant growth, as some private companies may grow from a company in need of capital to a thriving business, resulting in substantial profit. 

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Tax Advantages

Gains from an investment in a Self-Directed IRA can grow tax-deferred (Self-Directed Traditional IRA) or tax-free (Self-Directed Roth IRA).

Private Placement Investment Considerations

Eligibility
Public companies are traded on the open market and are regulated by the Securities and Exchange Commission. Private Placements are not as highly regulated and may require investors to be accredited because of the potential additional risk that could be involved. 

Due Diligence
Before investing in a private placement, investors are encouraged to do their due diligence and consult with a financial professional to determine whether the investment is a good fit for their financial situation.

ENTITY PAPERWORK
Investment Sponsors provide paperwork to their investors outlining the details of their offering. For LLCs, articles of organization and an operating agreement are provided. For funds (such as private equity funds or hedge funds), a private placement memorandum and subscription agreement are prepared by the investment sponsor. These documents outline the:

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Nature of the investment

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Company structure

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Expected returns

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Risk factors presented by the investment

Interested to learn whether your investment will work with a Self-Directed IRA? Contact us today!

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How To Invest in a Private Placement with 
Self-Directed IRA Funds

Madison Trust has streamlined the investment process for Self-Directed IRAs, so private investments with your IRA money are easier than ever.

1

Open a 
Self-Directed IRA

Open a self-directed retirement account with Madison Trust by completing our easy online application.

2

Fund 
Your Account 

Fund your Self-Directed IRA by transferring or rolling over all - or a potion of - your funds from an existing retirement account, such as an IRA or 401(k), or by making an initial contribution.

3

Place Your Investment

Instruct Madison Trust to send your IRA funds by writing a check or sending a wire directly to your investment.

IRA ownership in a private placement is titled as follows: “Madison Trust Company Custodian FBO [First Name] [Last Name] [Madison Trust Account Number]”.

The following documents, along with an Investment Authorization form, are required by Madison Trust Company for Self-Directed IRA private investments:

LLC Minority Interest:
  • Articles of Organization
  • Operating Agreement
  • Certificate of good standing
    (if entity exists for more than 12 months)
Fund:
  • Subscription Agreement
  • Private Placement Memorandum
How To Invest Your IRA into a Private Placement

Ready to start investing in your future?

Reach out to our team, and we’ll answer any questions you may have.
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