ACCESS THE LARGEST POOL OF LIQUIDITY IN THE U.S.
There are close to $9 trillion dollars held in IRAs, representing more than 30% of all retirement assets in the U.S. Rollovers from employer plans continue to fuel the growth of traditional IRAs with more than half of traditional IRAs containing rollover funds from an employer sponsored plan. The average traditional IRA account value is slightly more than $200,000, including an employer sponsored rollover, and averages about $88,000 without the rollover.
BENEFITS TO ALTERNATIVE FUND SPONSORS
For many investors, their retirement account is their single largest liquid asset. Offering them the opportunity to use those funds to invest allows them to participate in markets they know well and that they may not have access to otherwise.
Many investors are unaware of their ability to invest in alternatives with an IRA and would welcome the opportunity to do so, doubling your opportunity with any one investor by adding on the retirement account option.
IRAs also offer tax-sheltered returns and could mean better returns for investors over the long term. IRAs are typically invested for the long-term and withdrawals are rare, unless required. Funds using IRAs have an extremely high retention rate, allowing for predictable cash flow and stability.
BENEFITS TO USING MIDLAND AS YOUR CUSTODIAN
Firms raising capital use many custodians all with different processes and procedures when administering alternative assets in self-directed IRAs.
The Midland Solution
By using Midland for all of your self-directed clients, you give your staff a consistent and familiar process when working with our specialized service team.
Obtaining fair market values can be a hassle for both you and your investors.
The Midland Solution
Midland provides an annual deadline and proactively requests these values from you in order to update Midland investor holdings. Clients are automatically notified of updates which are reflected directly in their client portal.
Income distributions require individual ACHs or wires for individual client accounts.
The Midland Solution
We allocate any distributions with just one wire and instructions from you.
Every time you call a custodian, you need to re-explain your problem or issues because you always get someone new on the phone. Some custodians even take steps to conceal their service representative’s contact information so you cannot contact them directly.
The Midland Solution
We do not use a call center so you will speak directly to your contact or a knowledgeable member of their team. Your firm will be handled by staff that knows you, your investment, and your clients.
Our process is transparent and we make sure you always know where your client(s) are in the funding process.
Account setup and investment paperwork can start to stack up, requiring excess time from clients.
The Midland Solution
For some investments, clients can apply using Midland OnePath – the most powerful online investment tool in the industry. You send us your paperwork, we then set up your asset on our platform and clients complete the application and investment packet at the same time, thus simplifying the process for you and your clients.
To us, you are our client just as much as the end investor.
TYPES OF ACCOUNTS THAT ARE PORTABLE
In general, defined contribution plans are portable, defined benefit plans (pension plans) and flexible spending accounts are not. Many employers won’t allow an account to be rolled over if the employee is still employed by the plan sponsor but there are exceptions so it is best to ask the plan sponsor.
Individual Retirement Account (IRA)
If a client has an established IRA, it can be transferred to Midland to set up an account to fund alternative investments.
401(k) and 403(b)
401(k) plans are also known as individual(k)s or solo 401(k)s. These retirement plans provide much the same profit-sharing advantages as a typical 401(k) with less complexity and lower costs.
403(b) plans are like 401(k)s but they are offered by public schools and certain types of non-profit organizations (501(c)(3)s).
Both of these plans can be rolled over into an account at Midland, but often that depends on whether the account owner is still employed by the plan sponsor. The account owner should check with the employer about rollovers if still employed by the plan provider.
Savings Incentive Match Plan for Employees (SIMPLE)
SIMPLE plans allow contributions from the employer and the employee which can be rolled over, with the exception of Roth IRAs. However, during the 2-year period beginning when the owner first participated, they can only transfer money to another SIMPLE IRA. After the 2-year period, they can transfer to other types of non-Roth IRAs.
Simplified Employee Pension (SEP)
A SEP is similar to a Traditional IRA in that a rollover from trustee to trustee can happen at any time.
Health Savings Account (HSA)
HSAs allow for contributions from the employer and employee which can be transferred or rolled over into another like account.
ADDITIONAL ACCOUNT OFFERINGS
Private Fund Custody
Midland Trust Company is a qualified custodian that provides service to private funds and organizations by adding transparency and separation of fund assets. Midland offers two levels of custody services:
Full Custody: Midland will take custody of assets and cash, process all new purchases/liquidations, monitor all incoming and outgoing payments, and provide fund-level statements to all investors of the Fund.
Document Custody: Midland will take physical custody of original documents.
Investment accounts for taxable money (personal savings, corporate savings, or trust funds) which allows investors to buy and sell alternative investments. Types of custodial accounts offered at Midland:
- Joint Tenants with Rights of Survivorship (JTWROS)
- Tenants in Common (TIC)
- Tenants by Entirety (TBE)
MIDLAND PROCESS - NEW ACCOUNT
There is no cost to the investment sponsor to use Midland as the custodian. Set-up is done once for each fund and the IRA investor pays Midland’s administrative fees.
MIDLAND PROCESS - ADDITIONAL FUNDING
IRA CAPITAL RAISE NEED-TO-KNOWS
1. Most often, the asset held is titled in the name of the account owner when it should be titled in Midland’s name: Midland Trust Company As Custodian FBO John Smith IRA #123456.
2. Income, dividends, distributions and/or payoffs should be sent to the client’s IRA at Midland, not the account owner. All income and expenses for an investment held in an IRA must go back to the IRA.
3. As the custodian and administrator, Midland cannot review, promote, distribute, or endorse any investment.
4. Capital calls cannot be mandatory for IRAs, though the IRA holder can elect to participate.
5. Midland should be copied on all correspondence for capital calls.
6. The investment sponsor must inform Midland if a prohibited transaction occurs and that includes IRA transactions with prohibited persons or transactions that benefit the IRA holder.
7. The investment sponsor must notify Midland of any changes in contacts or company status with the investment.
8. It’s important to remember that Midland does not provide investment, legal or tax advice to IRA holders, investment sponsors, or providers.
9. Funding is frequently held up when signatures are missing on documents from the investor or investment sponsor.
10. No more than 25% of the total capital raised may be from ERISA regulated accounts. IRAs are considered benefit plan money, but are not covered under ERISA as long as there are no other ERISA funds in the investment pool. Once other ERISA funds are accepted, the IRA funds count towards the 25% limit. If you intend to accept any ERISA funds in your capital raise, consult with legal counsel on limitations and ERISA rules.
11. IRA investments may generate Unrelated Business Income Tax (UBIT) or Unrelated Debt-Financed Income (UDFI) for the investor, both of which require filing form 990-T with the IRS. Midland handles tax payments with the IRS as the custodian for the IRA but all taxes owed must be paid by the IRA, not the individual taxpayer, so funds must be available if UBIT or UDFI is expected.
12. The investor needs accreditation to invest but is unsure of their status. An investor is considered accredited if their net worth exceeds $1 million individually or jointly with a spouse and they have an annual income exceeding $200,000 individually or $300,000 jointly for the last two years with the expectation of earning the same in the current year. If investors are required to be accredited, an investor’s IRA has the same investor accreditation as they would personally.
ITEMS THAT CAN SLOW THE PROCESS
1. The account where the client is transferring funds from is not liquid.
2. The plan the client chooses to use for the investment is not portable to another custodian. Have the client confirm that a rollover of the account is possible.