Self-directed IRAs open a world of opportunities for all investors. Those who utilize self-directed plans do so to take advantage of investing in a large number of alternative investments besides the traditional stock, bond or mutual fund. Recently, investors have become excited about a fairly new investment trend called crowdfunding.
A crowdfund is the newest form of raising capital for small businesses or investments and some experts project this investment opportunity to eventually dominate as a primary method of raising capital in amounts under $1,000,000. The concept behind a crowdfund is to loosen the restrictive securities laws so that new or existing companies can raise small sums of money from large groups of people. The Jumpstart Our Business Startup (JOBS) Act will allow unaccredited investors to participate in these types of private equity offerings, when in the past only highly experienced, accredited investors were allowed to participate in private equity investments. Owners of self-directed IRAs are anticipating the opportunity crowdfunding presents.
How do Crowdfunds Work?
Crowdfunding is a term that refers to individuals or business entities seeking small investments from a large “crowd” of investors to gain capital to fund a start-up venture. Self-directed IRA investors are likely to be a significant investor group in crowdfund offerings as much of the nation’s wealth is held in IRAs and 401ks.
There are limits and certain regulations for participating in a crowdfund investment. If both your net worth and income are less than $100,000, you can invest $2,000 or 5 percent of either the net worth or annual income, whichever is higher. If your net worth or income is over $100,000, you can invest up to 10 percent of your net worth or income, whichever is higher.
If you decide to participate in a crowdfund investment venture with your IRA, there are a few important facts to remember. As with all investments inside a self-directed retirement account, you are responsible for finding the investment or sponsors, and for performing your own due diligence in determining the viability of the investment. Self-directed IRA administrators like Midland IRA do not sell investments, but we do fully administrate account details for crowdfund investments.
Easy Steps to Self-Directed Investing
- Select a retirement plan. Midland IRA offers a full range of retirement plans – traditional, Roth, SEP, and SIMPLE IRAs, as well as Individual(k) plans. Clients can even self-direct health and education savings accounts.
- Contact Midland IRA. We’ll provide you the correct forms to open the account.
- Fund the Account. Our form kit also includes a funding form. Accounts may be funded through a contribution or transferred from another IRA.
- Select your crowdfund company or investment.
Crowdfunding is a new opportunity for many investors and for smaller companies to raise capital to grow. However, self-directed IRA accounts also allow investors to purchase other nontraditional assets like real estate in an IRA, private notes and private LLCs.
This article was written by Doug Roberston, CISP, Regional Manager and Dave Owens, CES, CPA, President of Midland IRA. If you have questions or would like more information about self-directed IRAs and alternative investments, please contact either of them by calling (239) 333-1032, or emailing Dave at firstname.lastname@example.org and Doug at email@example.com.