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Raising Capital? Don’t Overlook Retirement Funds

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  |  By Christopher Orr, SDIP

The holiday season might be called the most wonderful time of the year, but we also know it can be the busiest for investors trying to get their financial house in order. Today's headlines are increasingly filled with year-end financial tips, including recommendations that investors take a second look at their retirement accounts and contributions before heading into the New Year.

If you’re an investment sponsor, private fund manager or an entrepreneur (for the sake of this blog post, we'll use the catch-all phrase asset sponsor), it's also a good time to take a second look at retirement accounts, particularly self-directed IRAs. Retirement accounts might not be the first source that comes to mind when you're looking to raise funds, but they represent billions of potentially untapped capital.

Unlike traditional retirement accounts, self-directed IRAs allow investors to use tax-advantaged money to buy alternative assets – including private equity. These IRAs can hold everything from private corporate stock to hedge funds to limited partnerships. In a traditional self-directed IRA, investors can defer capital gains taxes until it’s time to take distributions, while in a self-directed Roth investors can avoid taxes on distributions.

Here at PENSCO, where we custody alternative assets for our clients’ IRAs, we’ve seen investors increasingly turn to private equity for diversification and potentially higher returns. Today, over 50% of the new investments we see are in private equity, and a growing number of those deals are discovered through crowdfunding platforms.

With year-end financial planning underway, now is a great time to explain to current clients that, if they aren't already, they can invest in private equity using tax advantaged dollars.  It’s also a good time to work with PENSCO to ensure your fund can accept self-directed IRA dollars.

Here’s how we can help:

Asset Administration Review

PENSCO will perform a review to determine if your investment is “administratively feasible” and can be held in a retirement account. Certain investment types and transactions are considered prohibited transactions or have disqualified parties and are not allowed in a self-directed IRA. Our “Deal Office” will perform a review and quickly let you know if your asset is permitted in a retirement account.

Once your asset is pre-reviewed and accepted, you can reach out to your prospects. Let them know the asset has been reviewed by PENSCO, and the formation and operating documents for the fund have already been submitted and accepted . This will mean less paper work for your clients.

Working With Your Clients

We want to make the investment process as hassle free as possible, so after your asset is accepted you can send your clients to us and we’ll make it easy for them to invest using tax-advantaged dollars. Filling out two forms (here and here) will help to get them started. We’re here to guide them through the process from opening an account, to funding it, to ongoing maintenance.

If your client isn't quite ready to take the plunge, they can use the PENSCO Opportunity Analyzer to discover which types of private equity investments can be held in a self-directed IRA. They can also check out our Learn Center to find out more about alternative investing.

Eliminating Paperwork Hassles

While using qualified IRA funds to invest in alternative assets can mean extra paperwork, PENSCO has worked hard to make the process as smooth and flexible as possible. We’ve reduced the amount of paperwork involved by creating online wizards, alerts and other digital tools to keep and your clients informed. Need to update the value of your asset? You can certainly send us your statements in the mail, but you can also log on to update the asset value yourself as often as you need. 

At PENSCO, we always here to help, especially during the hectic holiday season. If you're an asset sponsor and you have specific questions about accessing self-directed IRA funds, please comment below and I’ll be sure to follow up with you.

This Blog does not provide investment, tax, or legal advice nor does it evaluate, recommend or endorse any advisory firm or investment vehicle. Investments are not FDIC insured and are subject to risk, including the loss of principal.