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.
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.
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.
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.
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.
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.
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.
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. The subscription agreement should be signed by you - as the client - as read and approved. 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.
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.
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.
Open a self-directed retirement account with Madison Trust by completing our easy online application.
Fund your Self-Directed IRA by transferring or rolling over all - or a portion of - your funds from an existing retirement account, such as an IRA or 401(k), or by making an initial contribution.
Instruct Madison Trust to send your IRA funds by writing a check or sending a wire directly to your investment.
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.
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?
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.
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.