Self-directed IRAs give plan owners control over their retirement funds and the freedom to invest in many diverse alternative investments. Another advantage we see clients of Midland benefit from is the ability to partner funds to acquire assets. This strategy is perfect for those who have limited investing funds in their plans. By partnering capital, self-directed IRA owners can increase buying power and have the opportunity to invest in more lucrative assets.
How Partnering Your IRA Funds Works
Your self-directed IRA can partner funds to acquire assets in a few different ways. As the account owner, you can choose what option is best for you. Your IRA can partner funds with your personal funds, with another IRA or with the funds of another person. You can even partner with funds from a non-recourse loan.
When you invest this way, you do so at a set percentage of ownership. For example, your IRA can own 50 percent of the asset and the partner owns the other 50 percent. Or, your IRA can own 72 percent and the partner can chip in 28 percent, etc. All income and expenses pertaining to the investment are divided at the percentage of ownership each partner holds. Partnerships often occur with real estate investments. However, your IRA can pool funds for just about any investment purpose provided IRS deems the asset is permissible in self-directed retirement plans.
There are a few things you need to clearly understand before deciding to partner funds to acquire assets:
- If you partner with your personal funds, your IRA’s portion of earnings is directly deposited into that account on a tax-sheltered basis. However, you would owe tax on any income gained by the personally funded portion of the investment.
- Make sure you perform due diligence—not only on the proposed investment, but also on the potential partner. If partnering with another person or entity, take the proper steps to ensure they are honest and also capable of carrying out their responsibilities (such as being able to pay their portion of renovations if your investment is a rehab-and-flip).
- Always consult with your CPA or other financial advisor. These professionals can ensure you structure the partnership properly and help you follow the rules set forth by the IRS that govern investing with retirement plan funds.
Midland is a self-directed retirement plan administrator serving clients across the nation who hold over $2 billion in self-directed assets. Our staff is experienced and we work closely with our clients to ensure all administrative elements of self-directed investing operate within compliance of IRS rules and regulations.
If you’d like to learn more about partnering funds to acquire assets, or if you simply want to discover the freedom of self-directing an IRA, contact us today at (239) 333-1032.