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Small business is the backbone of our nation’s economy and the IRS allows retirement plans to hold shares of privately-held companies. You may see more profit potential in a private investment than stock of public companies offers. Just as venture capitalists look to get in on the ground floor of businesses with good ideas, using your IRA to make an early investment in a promising business can give you a huge payoff if it proves successful.

Here we discuss how you can purchase equity in a private company with an IRA or 401k plan and get all the associated tax advantages.

Things to Remember When Investing in Private Equity:

  • The IRS allows retirement plans to hold shares of a privately-held company.
  • Your IRA cannot purchase privately held equity that YOU already own.
  • If you own the company, certain restrictions may apply.
  • You need a self-directed IRA custodian to invest in private equity with your IRA.
  • Investment earnings flow into the Self-Directed IRA account.
  • You can invest in all types of privately held entities including C-Corps, LLCs, LPs and more such as small local banks and private businesses. However, remember that you are prohibited from buying into the entity with your retirement account if you or any disqualified person owns 50% or more of that entity.

    Want to start a new business, franchise or provide working capital for an existing business?

    You can do so with an approved retirement plans. Many people are wanting to become their own boss since they been downsized or just tired of the corporate rate race. Some are starting home based businesses and others are purchasing franchises or buying existing businesses. An existing retirement plan such as an IRA, 401(k), etc can be a source of funding for business financing. Some advantages for this type of funding strategy includes elimination of the need for debt financing, can use funds as a down payment to secure additional financing, and can get tax deferred status by being directed back to your retirement account.