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Speak with a Broad specialist:
(800) 395-5200Schedule a CallOpen an Account

April 22, 2015

Are You Smarter Than a Snuggie?

One of the lesser utilized capacities of a self directed IRA is the ability to put your (obviously) amazing ideas into action. Although it’s true that most self directed investors go the real estate route, there are a number who engage their entrepreneurial spirit and finance a business with their retirement funds. Just as easily, an investor can look to develop and market an invention. Now before you mental Stop sign blows its whistle, take a moment to consider what we mean when we say invention. The first thought that comes to mind is something electric, technical, or otherwise outside the ken of normal human folk. Most of us could no more build a revolutionary app than my brother-in-law’s lips could stop moving for at least two consecutive minutes. However, that doesn’t mean that we’re out of the game. If you take a look at some of the most successful inventions in the past few years, what quickly becomes apparent is that they weren’t necessarily epiphanies of a rocket scientist. Everybody’s favorite love-to-hate product was actually a huge profit for its creator. The Snuggie, a blanket with sleeves, could hardly be called an invention. In fact, its design is so simple that inventor Scott Boilen wasn’t even able to take out a patent on it. And yet, this little no brainer has gone on to reap ridiculous profits. In the first five years of production, over 30 million Snuggies were sold. In terms of revenue, you’re looking at hundreds of millions. Not bad for an “alternative” investment. In the toy department, it’s hard to find a simpler and less complicated plaything than a Slinky. This little metal wonder debuted 70 years ago in 1945, and it’s been going strong ever since. The Slinky’s origin story is the epitome of simple. According to Wikipedia it came about like this: “James accidentally knocked one of the springs from a shelf, and watched as the spring "stepped" in a series of arcs to a stack of books, to a tabletop, and to the floor, where it re-coiled itself and stood upright.” Yes, the man knocked over a spring and the Slinky was born. And since then that little baby has delivered over $250 million in profits. A self directed IRA is actually a great retirement vehicle for financing an invention. As all self directed investors know, the one thing you have to watch out for is the specter of Prohibited Transactions. In short, the retirement account holder may not give or receive any immediate benefit from the IRA’s assets. In the case of an invention this means that any profits delivered by the invention either have to be reinvested in the company or saved until they become available at retirement age. (From a government perspective retirement age is defined as 59 ½.) However, the invention world itself is already accustomed to these kind of time frames. It’s not at all unusual to have a multi-year time table from initial idea to successful product. Now let’s step back a second and let the Stop sign have a brief say. The truth is that creating and marketing a successful invention is not so simple. In addition to the idea itself, there can be a large initial investment for R&D, patent application, prototype production, advertising, etc. Coupled with that is the fact that most new inventions are not commercially successful. Take these two things together and you certainly don’t want to bet your whole retirement on the next great thing. You have to truly believe in your idea, be reasonably certain that it will succeed, and be willing to walk the long road to success. Even with those factors in place, you may still want to hedge your bets. There are a number of companies out there that are willing to invest in your idea for a nice chunk of the profits. It pays to research them to see if any possess financial models that you would be comfortable with. (It also pays just to make sure that the company is legitimate. Many would-be inventors have been fleeced by professional looking con artists.) In summary, if you think you have the greatest idea since a blanket with sleeves, then you can make it responsibly happen using your retirement funds. (And if that idea has anything to do with my brother-in-law, let me know. You might just have another investor on board.)


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