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Home > Blog > Small and Private Business Investing with a Self-Directed IRA

Small and Private Business Investing with a Self-Directed IRA

Key Points 

  • A Self-Directed IRA (SDIRA) enables to you invest in a small or private business while diversifying your retirement savings.
  • Some of the most common private business investments include hedge funds, startups, private REITs, and local businesses.
  • By upgrading to a Checkbook IRA, you may invest in private businesses on your own, in real-time, without the need for a custodian for your everyday transactions.

If you’re looking for a way to diversify your retirement savings, a Self-Directed IRA (SDIRA) can be a good option. Unlike a standard IRA, it allows you to invest beyond stocks and bonds and in alternative assets, including private businesses. Below we’ll dive deeper into how you can use an SDIRA to invest in small or private businesses.

What Is a Private Business?

Open sign hanging on the door of a small private business selling clothes.

First and foremost, let’s define what a private business actually is. Hence its name, a private business is privately owned by founders, a management team, or a group of private investors.

While it may issue stock and have shareholders, its shares won’t trade on public exchanges or be issued through initial public offering (IPO). For this reason, a private business doesn’t have to meet the typically strict filing requirements set forth by the Securities and Exchange Commission's (SEC).

What Types of Private Businesses Can You Invest in with a Self-Directed IRA?

An SDIRA opens the doors to a variety of private business investments. With this powerful retirement savings tool, you can invest in the following:

  • Hedge funds
  • Startups
  • Crowdfunding opportunities
  • Private REITs
  • Small/local businesses 
  • Other companies and stocks that aren’t sold publicly

Benefits of Investing in a Private Business with a Self-Directed IRA

By leveraging an SDIRA to invest in a private business, you can reap these benefits:

Benefits of Investing in a Private Business with a Self-Directed IRA Infographic: (1) Diversify Your Retirement Portfolio - You don’t have to stick to stocks, bonds, and mutual funds. With an SDIRA, you can invest in alternative assets, like private businesses and truly diversify your retirement portfolio. Why put all your eggs in one basket if you don’t have to? (2) Receive Tax Advantages -
Choose from a Self-Directed Traditional IRA and save money on your taxes immediately. In contrast, you can opt for a Self-Directed Roth IRA and receive your dividends tax-free. (3) Potential for Higher Return on Investment - Investing in alternative assets, such as private businesses, can offer potentially higher returns than traditional assets like stocks and bonds. This is particularly beneficial during stock market downturns. (4) Support the Community - Investing in a private business can help your local community. Your investments may pave the way for new ideas and innovations in your area.

What To Know Before Investing in a Private Business with a Self-Directed IRA

Keep the following in mind before you go ahead and invest in a private business with an SDIRA. 

  • Who is Eligible: Anyone with earned income.
  • Contribution Limits: The contribution limits for 2024 is $7,000 (or $8,000 for those age 50+).
  • Tax Advantages: With a Self-Directed Traditional IRA, your funds grow tax-deferred. On the other hand, with a Self-Directed Roth IRA, your funds grow tax-free.
  • Required Minimum Distributions (RMDs): Must begin at age 73 in 2024. Distributions are taxed as ordinary income.

How To Invest in a Private Business with a Self-Directed IRA

It couldn’t be easier to invest in a private business with an SDIRA. Here’s what the simple, process typically entails:

Icon investor typing on computer with a clock next to him opening his Self Directed IRA account

Open a Self-Directed IRA by completing an online application.

Icon of a piggy bank to indicate funding your Self-Directed IRA.

Fund your account by transferring or rolling over all - or a portion of - your funds from an existing retirement account such as an IRA or 401(k). You can also make an initial contribution.

Icon investor holding money and increasing graphs in the back showing that he invested his Self-Directed IRA funds.

You'll instruct your custodian to issue a check or wire to the private business investment of your choice.

Consider Upgrading to a Checkbook IRA

If you’d like more control and flexibility while investing in private businesses, a Checkbook IRA may be an intriguing option. Unlike an SDIRA, a Checkbook IRA doesn’t require a custodian to execute your everyday transactions on your behalf.

Investor writing a check out to invest in real time, made possible by upgrading to a Checkbook IRA.

You, the account holder, can perform transactions on your own after you establish an IRA LLC or IRA Trust. You don’t have to fill out a custodian form or wait for authorization. Simply write a check or send a wire to make transactions in real time.

Getting Started Investing in a Private Business with a Self-Directed IRA

If you’re interested in investing for retirement with private businesses, an SDIRA from Broad Financial can be the ultimate option. To get started or learn more, we encourage you to contact us today.

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