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IRA's (your own & immediate family members) & Prohibited Transactions, money mgt


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I invest my own money as well as that of my parents and sister.

 

I do not take compensation other than (hopefully) making my family wealthier.

 

About 60% of my investment assets are in IRA's/HSA, and about 30% for my parents/sister.

 

Occasionally, I contemplate forming a partnership (in 5-10 years once certain goals are met). Let's set aside whether or not this is a good idea for the purposes of this thread and details about set up (SMA's, Onshore, offshore, etc).

 

My question is: does anyone manage immediate family member's and/or their own IRA's in exchange for compensation? Or for free

 

The basis of my question is that most of what I find on the internet tells me that if there is any benefit accruing to you from your own or your family members' IRA it's a prohibited transaction. This could even include a "marketing benefit" such as "I have all my and my family's money  (including) IRA in the fund so I'm well aligned" or pass through expenses such as audit and admin.

 

I recognize this is firmly in the "consult a lawyer" camp, but I'm wondering if anyone has dealt with this. Let's say hypothetically, I'd want day one GP investment to be $xx and initial AUM to  to be Y. Whether I can use IRA money has a significant effect on that.

 

 

 

 

 

 

 

 

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I'm not going to put too much effort in to this so, here's a high level overview.

 

It seems that you understand that retirement assets are different from a legal perspective, you need to add in that they are different from a practical perspective in terms of the differing regulatory burden likely means additional costs with the end effect being that client money of different types can have a different value to you in terms of being a viable pursuit after costs.

 

The other important consideration is that on a practical level what you can get away with in terms of avoiding regulatory burden as you grow can vary dramatically by local (state) regulation.

 

Sounds like you already know a lot, but hopefully that helps confirm some of what you are learning.

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yea, I think i understand the general rules regarding exclusive benefit/fiduciary duty as well as the general concepts of self dealing.

 

I am just surprised there isn't an exception for money management at market terms. There very well may be.

 

The way I interpret it, If I wanted to manage my own IRA or my immediate family's IRA for a reasonable fee such as pass through expenses + 0.5% or 1.0%, that would be a prohibited transaction and force the accounts to cease to be IRA's.

 

There's got to be someone out there who has dealt with this? or do all the small managers here invest their IRA's separate from the funds they manage

 

This seems pretty clear that it’s a no no

https://www.richeymay.com/wp-content/uploads/2016/11/Considerations-for-IRA-Investment-into-Fund-Structures.pdf

 

Can I invest my IRA in my own fund?

A. Yes, as long as your IRA investment does not provide benefit to you personally. For example, avoiding personal benefit would include that you do not charge fees for managing the funds, do not own 50% of the fund, either personally or combined with other disqualified persons, do not use your IRA to draw in other investors, or your fund is self-sustaining without your IRA investment.

Q. Can I charge fees to my family members?

A. It depends on whether or not they are disqualified persons. Typically, lineal ancestors or descendants are not allowed; certain lineal ancestors or descendants of the spouse may not be allowed and other family members (i.e. cousins, brother/sister) are likely okay. For specific questions on which family members are or are not allowed, please consult tax counsel.

Q. Is there a limit on the amount of retirement funds I can allow in my fund?

A. Depending on the circumstances, if any class of interests in an investment entity is funded by 25% or more of retirement assets, there could be a trigger of fiduciary and prohibited transaction rules. Consult with your tax counsel or other professional familiar with these rules.

 

 

 

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