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INVESTMENT GUIDE

Private
Equity

Build a stake in the next big start-up through private stock offerings or crowdfunding platforms.

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AT A GLANCE

What should you know about Private Equity?

The IRS allows an IRA (Traditional or ROTH, SEP or SIMPLE), Solo 401(k), HSA, or ESA to acquire private equity (an ownership interest in a private company) as an investment while keeping the tax benefits associated with that account type. The ability of your IRA or HSA to invest in a private company gives you the opportunity to exercise your personal market knowledge and investment expertise.

Investing in a privately owned business or entity with your IRA may sound unfamiliar since most IRA providers only allow account holders to purchase publicly traded stocks, bonds, and funds as investments. However, private equity is an available asset to your retirement plan with New Direction Trust Company

The returns of a private equity investment can generate retirement wealth that is tax-deferred or tax-free depending on the account type. The IRA ownership of private equity is usually expressed as a percentage of ownership or shares of stock.

Investing in private equity as an asset in your self-directed IRA is one way to diversify your retirement portfolio. Unlike publicly traded securities, private equity does not have public disclosure laws associated with it. Therefore, the investor can use personal knowledge and experience when investing in private companies or private equity with a self-directed IRA. Investors can also combine their IRA funds with other sources of funding in order to
participate in the purchase of a hard asset like real estate or an ongoing business.

You, the IRA holder, select a company/entity in which you’d like to invest. You agree on terms with the company and direct us to send money from your IRA to close the deal. We make sure that the paperwork substantiates that the private equity investment is owned by your IRA, and therefore deserves the tax benefits associated with the account type.

INDEPENDENCE

A private equity investment is an asset that allows you to put your knowledge to work for your IRA.

DIVERSIFICATION

Investing in private companies and investing in private equity allows true diversification of your retirement account.

CONTROL

You control the companies/entities in which the IRA invests. You can apply your knowledge and expertise pertaining to the private equity market.

TAX-ADVANTAGED

With New Direction Trust Company, your tax-advantaged account can buy, sell, and exchange equity without tax consequence.

Investing in private equity can take place with many types of entities*:

*An IRA can’t invest in an S-Corp, nor can it be a General Partner in a GP.

IRC Section 4975 Considerations

All IRAs have a list of people who are disqualified from certain interactions with that account. Below is a graphic that delineates which family members are disqualified. Keep in mind that any entity that is owned or controlled by a Disqualified Person is also disqualified.

DISQUALIFIED PERSONS INCLUDE:

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THE PROCESS

How to invest in Real Estate with your
self-directed account

STEP ONE

How to Open a Self-Directed Account

The first step is to complete our online application. This will allow us to create an account number and provide you with access to our online Client Portal so you can easily manage your profile and future investments. 

A member of our business development team will be in touch shortly to walk you through how your will fund your account and what we need to initiate your first investment. 

NDTCO Client Portal on various devices

STEP TWO

How to Fund a Self-Directed Account

You have essentially two ways to fund your account

  1. Contribution
  2. Transfer/Rollover from another financial account

One thing to keep in mind if you are planning on rolling over funds from an employer-sponsored 401(k) is that not all plans will allow you to take an in-service rollover, which means you may not be able to move over any assets into an IRA without taking a distribution. 

Please contact your current plan provider to see if you are eligible for an in-service rollover. 

STEP THREE

How to Invest in
Private Equity

Once your account is funded, you will perform due diligence to find a business you believe in and assemble the necessary documents.

Investment Documents must follow these guidelines: 

  1. All investment documents must be titled in the name of the IRA, not your name personally: NDTCO as custodian, FBO John Doe Roth IRA
  2. Investor’s signature line left blank.
  3. Your signature as “Read and Approved” in the margins

Don’t worry if this seems confusing! We will walk you through each of these steps and communicate directly with your sponsor and depository to make your purchase as easy as possible. 

NDTCO Client Portal mobile version
Circle graphic detailing the process of using NDTCO as a custodial service for your self-directed account and alternative investments

STEP FOUR

How to Manage Your Account

Our online client portal combines human power and digital innovation. making it simple to view all your account information in one centralized location, giving you the ability to directly message our support team, review recent transactions, download account documents, and review a vast library of educational content easily and securely.

Simply log into our Client Portal to access and manage all of your account information.

Titling Instruction/Buyer Information

*The name in which the interest is to be held is: NDTCO as custodian FBO Client’s Name IRA

FAQ

A one-time $30 account opening fee is due at the time the account is established. You will then find a business you believe in, complete the necessary
paperwork, and fund your private equity investment! You can view our full fee schedule here.

Eligible NDTCO account types include

  • Tradition IRA
  • Roth IRA
  • SEP IRA
  • SIMPLE IRA
  • Solo 401(k)
  • HSA

All earnings from private equity investments flow directly back to the IRA. At that time, the account holder decides how to reinvest that money. Plan ahead and make sure the IRA has sufficient funds to cover related expenses. If you expect future installments or capital calls, plan to fund your IRA accordingly.

 

In the event you would like to transfer or distribute all or part of your IRA investment in the future, make sure the entity in which you would like to invest will allow the ownership to be assigned or reassigned. Keep in mind that some investments do not allow the investor to sell ownership units or withdraw funds during a fixed period. (If you happen to be 72 or over and have a traditional IRA, this may affect your ability to take your mandatory
distributions from the account.)

Because neither the IRS nor NDTCO researches nor endorses any investments, the IRA holder is responsible for performing due diligence on all investments. Visit our website for more information on due diligence and ways to protect yourself from investment scams. A competent professional in the legal, financial advice, or accounting fields can also be engaged if you need additional help. Any of these legal professionals can assist in deciding if the investment being considered is legitimate, meets your risk tolerance parameters, and is right for your investment goals.

A capital call, installment, or additional funding is very similar to the initial purchase process. Should your Private Equity IRA investment require a capital call or additional funding, New Direction Trust Company can assist with the process. Please note that additional funding depends on whether or not the operating agreement of the company allows for it. Please contact our offices with any questions regarding this matter.

The IRS requires an annual fair market value for each asset. Each year you will request a market value (or a statement as to the value of your asset if sold on the open market today) and supporting documentation from the entity’s manager. It is important for the integrity of your account that your assets have an up to date valuation.

Earnings from certain investments may be subject to Unrelated Business Income Tax or UBIT. The IRA pays this tax, not you personally. Consult with your tax professional to determine if UBIT is owed. If so, you would file a form 990-T with the IRS for your IRA. If your tax professional is unfamiliar with filing form 990-T, a sister company of New Direction IRA, IRA Tax Services, is available to help at 303-604-6466.

Unrelated Business Income Tax applies to debt financed property in IRAs and also applies to operating income received from companies owned by IRAs and qualified plans. Typically the debt financed income is taxable under UBIT rules for the percentage of property that is debt-financed.

NDTCO Client Portal displayed on a laptop
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OTHER INVESTMENTS

The world is your portfolio

Why stop at precious metals? With a self-directed account, you have the freedom to invest your tax-advantaged retirement or savings funds in the assets you’re most passionate about.

From start-ups to small businesses, if you can find it, we will help you fund it.

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EDUCATION CENTER

Want to learn more about Private Equity investments?