investing IRA assets into private equity

[ERICOPOLY]

I found this link:  http://newdirectionira.com/private-equity.html

 

So it appears I can invest my Roth IRA assets into shares of a private company (should such an opportunity come along  ;))

 

Any ideas on which major companies offer this kind of IRA, and who you would recommend?  To my knowledge Fidelity doesn't offer this type of IRA. 

 

But my idea is to open an IRA account (with the right company) and transfer some cash from my Roth IRA to that one, then invest in the private equity placement.

[slkiel]

I have a few IRA investors in my hedge fund. I've had them go through Advanta IRA and have been pretty satisfied: http://www.advantaira.com

 

The idea is that Advanta acts as the IRA custodian, ensuring you abide by the IRS rules and providing proper documentation. Then you're able to direct the investment into a private placement such as a hedge fund or private equity fund. The process is pretty painless. Feel free to PM me and I'll give you some referral info if you're interested.

 

There are some larger companies out there that act as IRA custodian as well. You just have to balance their fees and services.

[JRH]

This is the company through which I hold LLC partnership units in my ROTH IRA:

 

http://www.advantaira.com/

 

My other ("normal"?) ROTH is through Scottrade and they wouldn't do it. I was referred by someone who had priced several options and found a company called The Entrust Group in Tampa (later bought by Advanta) that was cheapest (by a decent margin).

 

The one small headache, in addition to costing $240/year is the annual information that has to be provided to Advanta ("custodian") which over the last three years has seemed to have something "wrong" with it every time - Advanta always comes back to me and asks for more information, but I am just the intermediary, in a sense, to the partnership. It is a little clunky playing back-and-forth.

[bigbadwolf]

This concept is known as a self-directed IRA.  I am going through the exact process right now rolling over a Roth to purchase shares in a privately held business.  The major player in the field for the US is Equity Institutional - formerly Sterling Trust.  The fee generally comes out to about 0.4% of AUM for smaller sums and goes down as asset value increases. 

 

I contacted a company in CA named IRA Services Trust - lowest cost provider from what I could tell but I am still having trouble getting myself to trust the process.  It seems like a fantastic opportunity for a major player to come in and dominate.  Most custodians don't want the headaches.  There are major tax compliance issues - annual valuations, prohibited transactions, IRS reporting, etc.

 

Last figures I saw were about 2% of IRA assets were in self-directed IRAs.  I fully expect this to grow over time.  The only well-known broker I could find was TD Ameritrade.  They required 100,000 of liquid assets outside the IRA and then an annual fee of $250.  Within TD Ameritrade, this IRA is referred to as holding a "non-standard asset" and an "alternative investment" - in case you are interested.  I am sure you can google it or I have emails from them, if desired.

 

I would advise you to get the asset pre-approved by the provider's compliance office before rolling over any funds.

 

 

[bigbadwolf]

One thing I forgot to mention - the IRS frowns up it (and will likely change the law soon) - but you can form a LLC and use your Roth funds to purchase this LLC.  It is known as a checkbook LLC.  The purpose of this is to have the LLC buy the privately held business (as one of its investments).  The self-directed IRA custodian charges a per transaction (think of the volume of cash in/out for rental real estate).  With the checkbook LLC, you limit the volume of transactions.  Most IRA custodians won't handle - but there are some that will if you search.

[watsa_is_a_randian_hero]

I found this link:  http://newdirectionira.com/private-equity.html

 

So it appears I can invest my Roth IRA assets into shares of a private company (should such an opportunity come along  ;))

 

Any ideas on which major companies offer this kind of IRA, and who you would recommend?  To my knowledge Fidelity doesn't offer this type of IRA. 

 

But my idea is to open an IRA account (with the right company) and transfer some cash from my Roth IRA to that one, then invest in the private equity placement.

 

Ericopoly - I hope you don't take this the wrong way - but I'm really surprised you haven't heard of this before.  I say I'm surprised because I view you as the thought leadership on this board when it comes to tax avoidance and investment schemes.  I say don't take it the wrong way, because I've thoroughly enjoyed and benefited from the schemes you've proposed in the past!  Tax avoidance schemes (legal ones) might be a close 2nd favorite topic of mine, behind stock research.

 

If you haven't already read about it, you should read about the methods Mitt Romney and Bain employed that resulted in him having $100mm+ IRA balances.  The practice is questionable, because the assets were purchased at (arguably) undervalued prices).  He was doing this back in the 90's though; not sure if the IRS was paying as close of attention back then.

[ERICOPOLY]

I found this link:  http://newdirectionira.com/private-equity.html

 

So it appears I can invest my Roth IRA assets into shares of a private company (should such an opportunity come along  ;))

 

Any ideas on which major companies offer this kind of IRA, and who you would recommend?  To my knowledge Fidelity doesn't offer this type of IRA. 

 

But my idea is to open an IRA account (with the right company) and transfer some cash from my Roth IRA to that one, then invest in the private equity placement.

 

Ericopoly - I hope you don't take this the wrong way - but I'm really surprised you haven't heard of this before.  I say I'm surprised because I view you as the thought leadership on this board when it comes to tax avoidance and investment schemes.  I say don't take it the wrong way, because I've thoroughly enjoyed and benefited from the schemes you've proposed in the past!  Tax avoidance schemes (legal ones) might be a close 2nd favorite topic of mine, behind stock research.

 

If you haven't already read about it, you should read about the methods Mitt Romney and Bain employed that resulted in him having $100mm+ IRA balances.  The practice is questionable, because the assets were purchased at (arguably) undervalued prices).  He was doing this back in the 90's though; not sure if the IRS was paying as close of attention back then.

 

It's hard to offend me because I'm a retail investor, not a pro.

 

I learn these things piecemeal as I blunder through life.  The last couple of days an opportunity came along and I said "I don't know how that works mechanically".  So then came the question to the board.

 

Thanks for all the help (to all the posts above).

[ERICOPOLY]

you should read about the methods Mitt Romney and Bain employed that resulted in him having $100mm+ IRA balances. 

 

I gave his $100mm some thought.  This is a Regular IRA (not a Roth IRA).

 

So does he really have $100mm?

 

He is 66 years old.  So I figure he's pretty much stuck with a 40% income tax (either in his life or upon his death) on those assets.

 

That knocks the effective balance down to $60mm.

 

Then I figure he is never going to spend all of the assets ouside of his IRA.  Therefore, he will effectively have to pay inheritance tax on the IRA assets.

 

At 40% rate, that knocks it down to $36mm.

 

So he doesn't really have anywhere near as much as people think.  In fact, the Treasury has about 77% more money in his IRA than he does!  He barely has 1/3 of what people believe.

[watsa_is_a_randian_hero]

do we know that its not a roth?  Also, I forget the exact numbers, but its disclosed as a range in campaign disclosures, I think 100mm was the low end (we're splitting hairs here though).  Finally, I'm sure his assets outside the ira are not insignificant.

[watsa_is_a_randian_hero]

I've looked into this myself over the last year but haven't pulled the trigger.  I have an IRA at Self Directed IRA Services, but this was set up just to invest in a Lending Club account and they facilitated the transaction.

 

I'd echo what was said earlier though, from what I've read the IRS frowns upon checkbook ira's and you run a risk of disallowing ira status if not done correctly (which is why I haven't done anything besides lending club).  I've read you need to avoid self-dealing (ie, investing in a company at which you are the CEO); then again, I've also read Zuckerberg bought some of his facebook shares in a roth.  There are also some strange rules where if leverage is used in certain ways, you have to pay the equivalent tax on the interest, or something along those lines.  What I'd love to do is have a checkbook ira that I could have the flexibility of a normal portfolio margin brokerage account, the flexibility of investing in real estate with a mortgage, etc.  However, I lack enough of an understanding to pull the trigger.

[ERICOPOLY]

do we know that its not a roth?  Also, I forget the exact numbers, but its disclosed as a range in campaign disclosures, I think 100mm was the low end (we're splitting hairs here though).  Finally, I'm sure his assets outside the ira are not insignificant.

 

I don't know for sure if Roth or not -- however I think they were only introduced for the first time in 1998.  Then there were income restrictions on doing a Roth IRA conversion.  Potentially he did the conversion in 2010 when the income restriction was lifted.

 

The low end of the range is $21 million and the upper end is $103 million. 

 

This article claims it to be a SEP-IRA (not a Roth IRA) -- however I would think he would have done a Roth IRA conversion by now (in 2010) so that his kids can inherit it (and so that he doesn't have to make forced withdrawals).  Especially since the tax rates were better.

 

http://www.bloomberg.com/news/2012-07-15/the-secret-behind-romney-s-magical-ira.html

[Packer16]

What he may have done is contribute his carried interest in the Bain funds inclusive of discounts.  This is the equivalent of putting call options of the equity of levered firms into an IRA over which you have control.  This could lead to higher the Buffet returns.

 

Packer

[krazeenyc]

have you guys looked at GRATs? I haven't looked up the cost structure to have it set up, but I am considering buying some property putting it into a GRAT for the benefit of my children, for a long number of years, and having it pay me back the original cost. But it's in the very early stage of planning.

[watsa_is_a_randian_hero]

have you guys looked at GRATs? I haven't looked up the cost structure to have it set up, but I am considering buying some property putting it into a GRAT for the benefit of my children, for a long number of years, and having it pay me back the original cost. But it's in the very early stage of planning.

 

I've done valuation consulting work for some extremely HNWI setting these up...but they were setting them up with hundreds of millions of dollars in each grat.

 

The tax benefits are amazing, especially in this low interest rate environment.  That said, I'm not sure how much the admin costs are and whether it would make sense for someone with something like $1 million vs 100's of millions.

 

edit: also, this is something you don't even need to have children to do...you can name unborn children as beneficiary, and then reclaim whole thing for yourself if you don't end up having kids.  Thats what Zuck did, at least from what I read.

[Tim Eriksen]

This concept is known as a self-directed IRA.  I am going through the exact process right now rolling over a Roth to purchase shares in a privately held business.  The major player in the field for the US is Equity Institutional - formerly Sterling Trust.  The fee generally comes out to about 0.4% of AUM for smaller sums and goes down as asset value increases. 

 

I contacted a company in CA named IRA Services Trust - lowest cost provider from what I could tell but I am still having trouble getting myself to trust the process.  It seems like a fantastic opportunity for a major player to come in and dominate.  Most custodians don't want the headaches.  There are major tax compliance issues - annual valuations, prohibited transactions, IRS reporting, etc.

 

Last figures I saw were about 2% of IRA assets were in self-directed IRAs.  I fully expect this to grow over time.  The only well-known broker I could find was TD Ameritrade.  They required 100,000 of liquid assets outside the IRA and then an annual fee of $250.  Within TD Ameritrade, this IRA is referred to as holding a "non-standard asset" and an "alternative investment" - in case you are interested.  I am sure you can google it or I have emails from them, if desired.

 

I would advise you to get the asset pre-approved by the provider's compliance office before rolling over any funds.

 

In addition to IRA Services Trust and Equity Institutional, Millennium Trust is another firm that some of my fund's investors have used.  Most of my clients were the least pleased with Equity Institutional.

[valuecfa]

You just need to find a Custodian that can hold this type of asset. Most custodians avoid having real estate, private equity, closely held companies, etc. in IRA's. My firm which is both an Agent and Custodian allows them within a self directed IRA, be it Roth or traditional

[menlo]

I haven't used them, but I believe https://www.pensco.com/ can help with private equity/alternatives in a retirement account.