Invest in West Virginia – Coal Mining

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Memorial Day is one of our nation’s most important holidays. On the final Monday of May, we remember the military men and women who gave their lives in the line of duty. In the years following the Civil War, a day of remembrance was created to honor the lives lost in that bloody American conflict. Decoration Day was born in 1868, renamed to Memorial Day in 1967, and made an official national holiday in 1971.

The Civil War shaped this holiday and our nation as a whole. In fact, the state of West Virginia may have never existed without this divisive chapter in American history. Virginia wanted to join the Confederacy, but a large cluster of counties in the western region of the state opposed secession. As a result, West Virginia was granted independent statehood and contributed to the efforts of the Union army.

Modern West Virginia holds a presence in common industries like chemicals and biotech. It’s also among national leaders in coal production. Coal, along with other fossil fuels, still provides a high percentage of electricity used in the United States. It therefore represents a viable investment opportunity, even as renewable energies continue to gain traction. Individual investors may hold equity in a coal mining operation, but these positions are publicly traded for the most part. This can limit self-directed investors if their IRA providers don’t administer public securities.

So how could a tax-advantaged retirement plan get involved with coal mining? Reliable crushing, underground excavation, and transportation equipment are the backbone of mining practices. Acquisition and upkeep of this equipment can be a major expense, so companies need to adjust their strategies accordingly. Just as individuals are sometimes financially inclined to lease a vehicle rather than purchase it, companies may be similarly inclined to lease equipment. As such, your IRA or 401(k) could participate in the coal industry by owning equipment and leasing it to a mining company. Your individual retirement plan would hold title to the machinery and receive payments in accordance with the lease agreement. This would constitute an ongoing business relationship, so you could enjoy regular income instead of one-time fee payments yielded from other non-real estate rental businesses.

Disqualified persons may not own more than 50% of the mining business, nor may they occupy key management positions at the time of acquisition. Lease revenue will return to your IRA or 401(k) with the applicable tax advantages. On the flip side, your self-directed retirement plan may have to cover maintenance expenses if the lease agreement includes provisions to that effect. Non-real estate rental property in a retirement plan may also be subject to unrelated business income tax (UBIT).

Although a coal mine was used as the example here, your plan can own any equipment and lease it for retirement revenue. For more information about the IRS parameters surrounding your alternative investment options, feel free to contact our team at 877-742-1270 or