As a trust company and custodian specializing in self-directed retirement accounts, we know firsthand the benefits this type of retirement funding can offer investors and issuers. Issuers, such as real estate developers, private equity firms, and other investment sponsors, can enable investors to invest with retirement money, including self-directed IRAs. Some benefits include:
- Access to additional capital
- Attracting and retaining more investors
- Competitive advantages
In this blog post, we'll explain why issuers might consider offering self-directed IRA funding to their investors and how AET can help make it happen.
How do investors use self-directed retirement accounts to invest in alternative assets?
If you have invested with your IRA or 401(k) before, then you probably know that there are restrictions on what you can and cannot invest in within those accounts. A self-directed retirement account, however, allows investors to branch out of the restrictions that come with standard retirement accounts. Let looks at the self-directed IRA, for example.
A self-directed IRA (Individual Retirement Account) is a type of retirement account that provides investors with the flexibility to invest in a wide range of alternative assets beyond the traditional investment options available in regular IRAs, such as stocks, bonds, and mutual funds.
Self-directed IRAs are governed by the same IRS rules and regulations as regular IRAs, but they offer more investment options and allow for greater control over investment decisions.
Here's how self-directed IRAs work:
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Account Setup: To open a self-directed IRA, an investor must first establish an account with a qualified custodian or trustee that specializes in self-directed IRAs (AET). This custodian is responsible for holding and administering the IRA assets and ensuring that all IRS rules and regulations are followed.
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Funding the Account: Once the self-directed IRA is established, the investor can fund the account by making contributions or transferring or rolling over funds from other retirement accounts, such as traditional IRAs, 401(k)s, or other qualified plans.
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Investment Options: The key feature of self-directed IRAs is the ability to invest in a wide range of alternative assets, including real estate, private equity, precious metals, cryptocurrency, private loans, and more. However, it's important to note that not all custodians allow investments in all types of assets, so it's essential to choose a custodian that supports the desired investment options.
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Investment Decisions: As the account holder, the investor has the authority to make investment decisions within the guidelines set forth by the IRS. This means the investor has more control and autonomy over their investment choices compared to traditional IRAs, where investment options may be more limited.
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Tax Advantages: Self-directed IRAs offer the same tax advantages as traditional IRAs. Contributions to a self-directed IRA may be tax-deductible if the account holder meets certain income requirements, and earnings within the IRA grow tax-deferred until withdrawn during retirement. Additionally, if the account is a Roth self-directed IRA, qualified withdrawals in retirement are tax-free.
7 Reasons why issuers offer self directed IRA funding to investors
1) Access to a New Source of Capital:
By offering self-directed retirement funding options, issuers can tap into a new source of capital from investors who have retirement funds available in their self-directed IRAs or other retirement accounts. This can provide issuers with additional funding for their investment opportunities, which they may not have otherwise been able to access. This can be particularly beneficial for issuers who are looking to raise larger amounts of capital. By allowing investors to use their self-directed IRAs to invest in your offering, you can tap into a new source of potential funding.
2) Attracting and retaining investors:
Offering self-directed IRA funding can also help issuers attract and retain investors. Investors interested in alternative investments may be more likely to invest in your offering if they can do so through their self-directed IRA. In addition, investors who can invest in a broader range of assets through their self-directed IRA may be more likely to stay invested in your offering over the long term.
3) Diversification of Investor Base:
Offering self-directed retirement funding options can help issuers diversify their investor base. By opening up their investment opportunities to self-directed IRAs and other retirement accounts, issuers can attract investors who are seeking diversification in their retirement portfolios and are interested in alternative investments beyond traditional stocks, bonds, and mutual funds.
4) Increased Investment Flexibility:
Self-directed retirement funding options provide investors with more flexibility to invest in a wide range of alternative assets, such as real estate, private equity, precious metals, and more. By offering self-directed retirement funding options, issuers can attract investors who are looking for investment opportunities that go beyond traditional investment options, and this increased flexibility can make their investment opportunities more appealing to a broader range of investors.
5) Potential for Long-Term Capital Commitments:
Retirement accounts are typically focused on long-term savings and investments for retirement. By offering self-directed retirement funding options, issuers may be able to secure long-term capital commitments from investors who are looking for long-term investment opportunities to help grow their retirement savings. This can provide issuers with a stable source of capital for their investment projects, which may have longer investment horizons.
6) Building Investor Relationships:
Offering self-directed retirement funding options can help issuers build relationships with investors who have self-directed IRAs or other retirement accounts. By providing access to investment opportunities through self-directed IRAs, issuers can establish relationships with investors and potentially develop long-term partnerships, leading to repeat investments and referrals to other potential investors.
7) Enhanced Investor Trust and Confidence:
By offering self-directed retirement funding options, issuers may enhance investor trust and confidence. Self-directed IRAs are governed by strict IRS rules and regulations, and investors may view issuers who offer self-directed retirement funding options as knowledgeable and experienced in handling retirement accounts. This can help build investor confidence in the issuer's investment opportunities and potentially attract more investors.
How AET Can Help
At AET, we provide self-directed IRA services to investors and issuers. Our team of experts can help you navigate the regulatory requirements associated with offering self-directed IRA funding, ensuring that you comply with all applicable laws and regulations.
In addition, we offer a secure and user-friendly online platform that makes it easy for investors to manage their self-directed IRAs. Our platform lets investors view their account balances, track their investments, and make contributions or withdrawals as needed. This can help make investing in your offering through a self-directed IRA as seamless as possible for your investors.
Our platform allows issuers to:
- Create an offering
- Invite investors to your deal
- Track and manage funding progress
- Manage distributions
Contact us to show how our platform can streamline and optimize retirement funding for your next deal.
