Investing in Crowdfunding

Crowdfunding is reshaping the financial industry and has gained a lot of attention over the past few years. A growing number of investors have wondered if they can use their IRAs to invest through different crowdfunding platforms, and the answer is YES!

Midland IRA allows clients to invest through the platform of their choice, as long as the platform itself accepts IRAs.

Crowdfunding has been helping individuals, companies, and groups raise capital for decades. With a self-directed IRA, investors now have the freedom to take advantage of these opportunities, as well. Midland IRA makes it easy for clients to take control of their retirement funds and choose assets they desire as investments.

Benefits of Crowdfunding Platforms

Reduced costs

Investors that want to invest in private deals typically have three options to do so. They can find and manage the investment alone, they can join a group that will source deals for them, or they can invest through a professional venture firm. All three of these options can be costly to individual investors. Crowdfunding makes the process efficient and accessible to the masses, so costs associated with these investments are typically less than sourcing these deals in the traditional manners.

Access to new opportunities:

Private companies are not allowed to announce that they are fundraising. Finding and having the opportunity to invest in privately-held ventures as an individual requires having a vast network that can connect them to these companies. Investing through a crowdfunding platform allows direct access to these investments.

Diversification:

Crowdfunding gives investors access to many different asset types including limited partnerships, LLCs, real estate, convertible notes, promissory notes, private stock, and much more.

FAQs on Crowdfunding in a Self-Directed IRA

What is Crowdfunding?

Crowdfunding is a way for companies to raise capital either through debt or equity. The term comes from the idea that anyone in the crowd can lend or buy-in and the investment opportunity is not limited to accredited investors or institutions.

What is an accredited investor?

Investors are accredited for certain types of investment opportunities based on income and net worth. Accreditation is meant to qualify investors as to their level of sophistication for more complicated investments such as hedge funds and private equity.

Do I need to be an accredited investor to invest in crowdfunding using my IRA?

Some crowdfunding platforms require it, some do not. Your IRA has the same accreditation as you so it is best to know that when researching options.

How do I invest using crowdfunding with my IRA?

Like all investments in an IRA, a crowdfunding option would be titled in the name of your IRA. For example, Midland Trust Co FBO John Smith IRA Account#123456. You must have your Midland account setup when you purchase the asset and cannot sell the asset to your IRA after the fact.

What’s the difference between real estate syndication and crowdfunding?

A syndication is a contractual relationship between investors. Crowdfunding is a way to find investors. Crowdfunding can also be used for other types of investments besides real estate.

How do I find a good crowdfunding platform?

You can find crowdfunding platforms by doing an online search, asking friends and other investors or checking with your tax or estate planner.

Are crowdfunding investments ever taxed in an IRA?

Some crowdfunding investments may produce Unrelated Business Taxable Income (UBTI). Income produced using debt financing can also produce tax liability for retirement plan investors, known as Unrelated Debt Financed Income (UDFI). It’s best to check with your tax or investment advisor before investing. 

LINKEDIN
SOCIALICON