Invest in a Startup or Crowdfunding Opportunity with a Self-Directed IRA

Key Points

Self-Directed IRA account holders have the power to invest in almost any startup or crowdfunding opportunity.
It is important to conduct due diligence to ensure you are not taking part in a prohibited transaction or become a victim of fraud.
The investment process is easy 1. Open an account 2. Fund your account 3. Direct Madison Trust to invest your IRA in the asset of your choice.
Benefits of investing in a startup company or crowdfunding opportunity include diversification, lower costs, convenience, and tax advantages.

There are thousands of startup companies with great potential, but many lack the proper funding to succeed on their own. Often startups look to raise capital from their family and friends, venture capitalists, or angel investors. However, there is a widely untapped source of funds that is often overlooked – retirement accounts.

Can I Use My IRA to Invest in a Startup or Crowdfunding?

Yes you can! A Self-Directed IRA allows you to invest in what you believe in including real estate, startups, crowdfunding, and more. Investing in a startup with a Self-Directed IRA diversifies your portfolio and has the same tax benefits as a standard IRA. And, if the new business goes public or is acquired by another firm, the potential return on investment for original investors is often significant.

Startup
A company founded by an entrepreneur in the early stage of its operation. Usually, these companies lack adequate capital to move to the next phase of business.
Crowdfunding
A popular way to fund a project or company by raising small amounts of money from a large number of people.

New Opportunities Await for Self-Directed IRA Investors

Diversify & Build Wealth

Investing in a startup with a Self-Directed IRA is beneficial for both parties. Self-Directed IRA investors have the opportunity to diversify their portfolio and engage in a potentially profitable investment, while startups get the crucial financial coverage required to keep their business running. Investing in a startup or crowdfunding opportunity with a Self-Directed IRA can cut your tax bill and has the potential to build wealth that can carry over for generations.

Start Up Possibilities

Self-Directed IRA account holders have the power to invest in almost any startup including a local restaurant, healthcare startup, new tech company, a new movie venture, or a small business with the latest and greatest product idea – the possibilities are endless.

Crowdfunding Options

There are also many opportunities available to invest in crowdfunding with a Self-Directed IRA, including peer-to-peer loans, syndicated real estate offerings, shares in commodities such as timberland, and more.

Additional Investment Choices

Limited Liability Companies (LLCs)
Limited Partnerships (LPs)
C-Corporations
Private Placements
Private Hedge Funds
Real Estate Investment Trusts (REITs)
Startups
Small Businesses
And Many More

Startup and Crowdfunding Investment Considerations

1
Eligibility

The SEC limits who can invest in certain offerings. Depending on the nature of the business offering, the opportunity to invest may only be available to accredited investors, sophisticated investors, or may have no limitations at all. Be sure to understand and meet the requirements to invest before you enter an opportunity. Find out more about investor limitations.

2
Due Diligence

Before investing in a startup or crowdfunding opportunity, investors are encouraged to perform thorough due diligence. Consider consulting with a financial professional to determine whether the investment is a good fit for your financial situation.

3
Entity Paperwork

To make your investment, Madison Trust requires a few documents outlining the details of the investment. 

To invest in a private company, please provide Madison Trust with a Private Placement Memorandum. If a Private Placement Memorandum is not available, please submit the company’s Operating Agreement, Articles of Organization, and Certificate of Good Standing (if applicable). Please also submit a Subscription Agreement, which details the IRA’s investment amount and ownership. Please refer to this flowchart for more information about what documents are required from you as well as Madison Trust’s role in the process. 

Before investing in a startup or crowdfunding opportunity, investors are encouraged to perform thorough due diligence. Consider consulting with a financial professional to determine whether the investment is a good fit for your financial situation.

Dos and Don’ts of Investing in a Startup/Crowdfunding with a Self-Directed IRA

Do

Invest in What You Believe In

 A Self-Directed IRA gives you the power to invest in what makes sense to you. Use your expertise to diversify your portfolio beyond Wall Street and feel confident in your financial future. Please keep in mind that investing in a startup is a high-risk/high- reward investment. Speak with a financial advisor to determine if this asset fits your investing strategy.

Diversify Your Retirement Portfolio

Whether you invest in a startup, real estate, cryptocurrency, or another alternative asset, diversifying is a great strategy. This way, you have a hedge against the stock market.

Don’t

Partake in Prohibited Transactions

Disqualified Persons – Your IRA cannot invest in a business that you or a close family member (spouse, parents, grandparents, children, etc.) has more than 49% ownership of or hold a directional role. 

Self-Dealing – You cannot receive any benefit prior to retirement for your investment. It is best to avoid any perks, such as free products or special services, offered to the shareholders that invest through the crowdfunding offering.

Invest in S-Corporations

An IRA does not qualify as an S-Corporation shareholder under tax laws. Therefore, IRAs cannot invest in any venture that qualifies as an S-Corporation.

How to Invest in a Startup or Crowdfunding Opportunity

1

Open

Complete our quick online account application

2

Fund your Account

Fund your new Self-Directed IRA via transfer, rollover, or contribution.

3

Make Your Investment

Direct Madison Trust to invest in the startup or crowdfunding opportunity you believe in.

Benefits of Investing in Startups and Crowdfunding Opportunities with a Self-Directed IRA

Diversification
A Self-Directed IRA lets you invest in a wide array of assets. The valuation of alternative assets, such as startups and crowdfunding opportunities, typically are not affected by the same market factors that impact shares of publicly traded companies. Therefore, with a diversified portfolio, you have a hedge if one asset class does not perform as planned.
Lower Costs
Online crowdfunding platforms are accessible to the masses, making it more cost-effective. You can invest as little or as much as you desire. At Madison Trust, we offer the same low flat fee regardless of your account value.
Convenience
Madison Trust holds your investments in a tax-advantaged account and makes investments on your IRA’s behalf when instructed by the account holder. It is easy to set up your account and invest.
Tax Advantages
By being in an IRA, the earnings from your investment will be tax-deferred (Traditional IRA) or tax-free (Roth IRA).

Startup / Crowdfunding – FAQs

How do I choose a startup or crowdfunding opportunity to invest in? What is the risk involved?

Investing in a startup or crowdfund with a Self-Directed IRA is risky due to the increased possibility of business failure, fraud, and vulnerability to hacker attacks. However, there is the potential for high rewards. Before you invest in a startup or crowdfunding opportunity, please be sure to perform thorough due diligence. Consider reviewing financials, obtaining background checks on company principals, gaining access to copies of reports, etc. and ask the following questions:

- Are they an accredited business on the BBB (Better Business Bureau)?

- How long have they been open? Are they reliable?

- Who are their competitors?

- What happens if the goals are not met?

- What are your options for liquidating the investment?

- Are there any regulatory hurdles that need to be overcome? Does the leadership have the expertise to navigate this?

Can you buy private stock in an IRA?

Yes, an IRA can own private company stock or private funds. For example, LLC interests, LP interests, or C-Corp stock. IRAs do not qualify as S-Corp shareholders and cannot own S-Corporation stock.

Do you need checkbook control to invest in a startup or crowdfund?

No, checkbook control is not required to invest in a startup or crowdfund. If you are looking to invest in one or two static assets, such as a private company’s stock, there may not be any advantage to having checkbook control. Checkbook control benefits investors looking to invest in assets that require more transactions and real-time access to funds, such as a real estate rental property.

Ready to start investing in your future?

Reach out to our team, and we’ll answer any questions you may have.
Corporate Headquarters:
Madison Trust Company 401 East 8th Street • Suite 200
Sioux Falls, SD 57103
Mailing Address:
Madison Administration Company One Paragon Drive • Suite 275
Montvale, NJ 07645
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Monday - Thursday: 9:30AM - 5:30PM EST
Friday: 10:00AM - 4:00PM EST
Saturday/Sunday: Closed
Contact:
(800) 721-4900
[email protected]
F: 845-947-1212
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