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.

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.

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.

Examples of Popular Private Placement Investments

Limited Liability Companies (LLCs)

Limited Partnerships (LPs)

Private Equity Funds

Small Businesses

Startups

Real Estate Investment Trusts (REITs)

Crowdfunding Ventures

Hedge Funds

Private Stock

Navigating Private Placements with a Self-Directed IRA: What You Should Know

Watch as Dana Udumulla, Investments Manager, and Ian Robertson, Senior Account Executive at Madison Trust, take a deep dive into investing in private placements with a Self-Directed IRA.

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

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.

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.

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).

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Take the first step and start a conversation with a knowledgeable Self-Directed IRA Specialist today to get the answers you need about investing in a private placement with an SDIRA.

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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:

Nature of the investment

Company structure

Expected returns

Risk factors presented by the investment

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.

Open a
Self-Directed IRA

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

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.

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:

Documents required for Private Placements would be:

Private Placement Memorandum (PPM)
Subscription Agreement completed/signed by the client
Madison Trust's Investment Authorization Form

If the company does not have a PPM, we would request the following:

Operating Agreement (OA) / LP Agreement (LPA)
Certified Articles of Organization (AOO) - AKA Certificate of Formation, Certificate of Incorporation, Articles of Formation, etc.)
Certificate of Good Standing (CGS) – only required if company is 12+ months old
Madison Trust’s Investment Authorization Form

If the company does not have PPM and also does not have an OA/LPA, then Madison Trust would request the Bylaws and an email confirmation of the company purpose to cover that bullet point. Madison Trust would still require the other three bullet points (AOO/CGS/IA) on top of the Bylaws/Email Confirmation.

How To Invest Your IRA into a Private Placement

Our Story

Madison Trust is an industry-leading Self-Directed IRA custodian with a passion for empowering individuals to gain control of their retirement investing. Learn more about our story from our President & CEO, Daniel Gleich.

Ready to Get Started? We're Here for You!

Madison Trust offers Self-Directed IRA services that are easy to get started with! Thanks to our dedicated Self-Directed IRA Specialists, you will be provided with step-by-step guidance from account setup all the way to placing your investment.

It's time to start investing in what you know and believe in with a Madison Trust Self-Directed IRA!

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