According to IRS.gov, the “opportunity zone” designation was created as part of the 2017 Tax Cuts & Jobs Act as a measure of encouraging new investments in “at-risk” communities. Upon nomination at the state level and certification by the Secretary of the U.S. Treasury, opportunity zones can accept investments from individuals and their self-directed IRAs.
Often touted for their “double bottom line” benefits (investors earn a tax-advantaged return for participating in community development projects), Qualified Opportunity Funds offer deferral of capital gains used to invest in the fund, and tax-free returns on fund appreciation if held for 10 years or more.
However, individuals can also invest their IRAs into these funds. In many cases IRAs have the ability to receive net after-tax returns that are comparable to the after-tax returns from the use of capital gains. Those interested in supporting an opportunity zone with their IRAs, 401(k)s, or health savings accounts needn’t worry about learning the technical nuances of how these communities will make money (real estate, new businesses, etc.); they may simply purchase shares of a qualified opportunity zone fund, just as they would any other public or private equity endeavor. The fund fuels the regeneration of the neighborhood and distributes any applicable returns to investors.
As with other alternative investment options, there are no legal stipulations to prevent a person who invested his or her personal, non-IRA money from also investing his or her retirement money into an opportunity zone fund. The investor can enjoy the tax benefits of a retirement plan while investing in a noble cause, while the fund manager can essentially find two investors within the same person. This allows investors to allocate additional funds and helps the fund managers secure capital more quickly. By raising capital that much faster, opportunity zones can get back on their proverbial feet more promptly and all parties involved can benefit.
We encourage all self-directed investors to conduct as much due diligence as they deem appropriate before engaging with any investment model. For more information about self-directed retirement investing or alternative IRA investments, give New Direction Trust Company a call at 877-742-1270 or send us an e-mail to firstname.lastname@example.org.