Private Placements IRA FAQs

There has been a lot of buzz lately over what is the best way to invest your retirement savings in order to reap the best returns. More and more people are turning to self-directed IRAs to allow them the flexibility to invest in many other options outside of the traditional stocks, bonds and mutual funds. One such self directed IRA that is getting quite a bit of attention is the private placement IRA.

A private placement IRA is a type of self directed IRA that allows you the ability to invest your retirement savings in companies that aren’t public. They work much like regular retirement accounts in that you get to deposit money into a tax benefitted account that you can then use to make investments in various investment vehicles. However, rather than having to purchase stocks and bonds that are publicly traded, you can invest in a variety of companies that aren’t publicly traded on the open market. Being a privately held company means that there aren’t stocks out there for everyday investors to purchase. This means that you have a unique opportunity to take advantage of potentially life changing profitability, if you time your investment right.

So, how do private placements IRAs work? Here are a few things you need to know.

What You Can Invest in With Private Placements IRAs

Using the money in your private placements IRA, you can purchase things like an interest in a limited liability company (LLC), a limited partnership (LP), shares in a pooled investment fund, interest in a new, exciting startup company or small business, REITs and so much more. These are not investments that are available for traditional investors to buy into, which gives you a unique opportunity to capitalize on a great idea.

Is My Investment Secure?

Unfortunately, these types of investments don’t undergo the same level of due diligence as publicly traded companies. This means that the responsibility lies with you to understand what level of risk the investment brings to the table and whether or not you have the risk appetite to invest. There is no guarantee that the company or pool you invest in will gain in value or that you will receive your initial investment back.

When will I be able to take distributions from my private placements IRA?

The short answer is that it varies. Many of these companies require an initial investment to remain with the company for a set amount of time before the investment and/or any earnings realized have to be repaid. This can pose a problem for investors who are close to retirement or are at an age where they have to begin taking mandatory distributions from your IRA or have to pay a penalty. It is important to understand what, if any, impact your investment activity may have on your ability to withdraw your funds.

Of course, if you have additional questions about private placements IRAs, you can always contact a private placements IRA custodian. They can provide additional information that can help you decide if this is the right account for your needs.