Investing Your IRA in Alternatives
In a regular IRA, you are limited to investing predominantly in publicly-traded stocks, bonds, and funds. However, some investors may be interested in using their IRA assets to invest in alternatives such as private real estate, private companies, private investment funds, commodities, and more. Such IRA accounts are called Self-Directed IRAs, and like regular IRA’s are regulated by the federal government.
Self-directed IRA’s require federally approved custodians to examine and approve alternative investments, process the more extensive paperwork involved with them, and receive and manage the investments in custody.
New Capital works with Strata Trust, based in Waco, Texas, to provide our clients with self-directed IRA custody, and we have experience in helping clients assess self-directed IRA’s from initial interest to establishing custody.
If you have interest in exploring a self-directed IRA, please contact Catherine Bahr at cbahr@newcapitalmgmt.com. In the meantime, to learn more please find Strata Trust’s frequently asked questions and video below.
SELF-DIRECTED IRAs
What is a self-directed IRA?
A self-directed IRA with STRATA allows you to invest in real estate, precious metals, crowdfunding, trust deeds, brokerage accounts, private equity and much more. Learn more about your investment options at https://www.stratatrust.com/self-directed-iras/investment-options/.
What types of investments are not permitted?
Prohibited IRA investments include collectibles like artwork, coins (except for certain U.S. coins and bullion), stamps, rugs, antiques, beverages, S-corp stock, gemstones and metals (except for certain U.S. coins and bullion) and insurance contracts. If you have a question about a particular investment, please contact us.
Are self-directed IRA’s reported to the IRS?
Yes. As with any IRA custodian, STRATA is required to file Form 5498 with the IRS each year as well as Form 1099R (if applicable).
Can I have a self-directed IRA if I participate in a retirement plan at work?
You can have a Traditional or Roth IRA whether or not you participate in another retirement plan through your employer or business. However, you might not be able to deduct all of your Traditional IRA contributions if you or your spouse participates in another retirement plan at work. Roth IRA contributions might be limited if your income exceeds a certain level.
Does STRATA offer any investment products or investment advice?
As an IRA custodian, STRATA does not sell investment products or provide investment advice. Custodians do not provide investment, tax or legal advice, so clients needing these services are urged to contact their professional advisor.
REAL ESTATE (DIRECTLY-OWNED)
What types of property can I purchase with my IRA?
You may purchase vacant lots, raw land and income-producing property such as rental houses, condominiums or commercial real estate.
Are there any types of property that STRATA will not hold?
STRATA will not process certain investments including, but not limited to, timeshares, foreign real estate or property purchased through an auction or tax sale.
Can I use the property held within my IRA?
Neither you nor any other disqualified person can have any personal use or benefit of the property while it is held in your retirement account. The property must be purchased for investment purposes only.
Can my account invest in real estate through a Limited Partnership or Limited Liability Company?
Yes. If real estate is being acquired through an entity such as an LP or LLC and your IRA will hold an equity interest in the entity, please refer to and provide the items shown on STRATA’s Investment Checklist for Private Equity. If your IRA will be originating a loan that will be secured by a mortgage or deed of trust, please refer to and provide the items on STRATA’s Investment Checklist for Private Debt.
PRIVATE EQUITY
What types of private equity investments can I hold within my account?
Types of private equity investments that STRATA will process include limited partnerships (LPs), limited liability companies (LLCs), C-corporation stock and real estate investment trusts (REITs).
Are there any types of investments that STRATA will not process?
STRATA does not process unsecured loans to individuals or loans secured by vehicle titles, foreign real estate and/or personal property. If you are uncertain whether STRATA can process the type of debt you have in mind, please contact us first.
Can my STRATA account invest in an entity that I or a family member owns or controls?
If your IRA invests in an entity that you or certain family members own or control (whether controlled individually or as an officer of a corporate general partner), the transaction could be a prohibited transaction under Internal Revenue Code Section 4975. If you or another disqualified person is an officer or director of an entity (or an officer or director of a corporate general partner, managing member, etc.), and you will collectively own 10% or more of the entity, STRATA Trust Company will require you to obtain a legal opinion from a tax attorney addressed to you in which the transaction is discussed in detail prior to processing your investment instructions. If you or any family member or disqualified persons collectively will own 50% or more of the entity, STRATA will not process the investment even if you are able to obtain a legal opinion.
PRIVATE DEBT
What types of debt investments can I hold within my account?
Types of private debt investments that STRATA will process include, but are not limited to, notes secured by deeds of trust/mortgages/security agreements, crowdfunding debt offerings and convertible notes.
Are there any types of debt investments that STRATA will not process?
STRATA does not process unsecured loans to individuals or loans secured by vehicle titles, foreign real estate and/or personal property. If you are uncertain whether STRATA can process the type of debt you have in mind, please contact us first.
Can my account loan funds to family members or to an entity that I or a family member owns or controls?
If your IRA loans funds to certain family members (lineal descendants and spouses of lineal descendants) or an entity that you or certain family members own or control (whether controlled individually or as an officer of a corporate general partner, managing member, etc.), the transaction could possibly be a prohibited transaction under Internal Revenue Code Section 4975. STRATA’s policy on this issue is that if you or another disqualified person is an officer or director of the borrowing entity (or an officer or director of a corporate general partner, managing member, etc.), and you will collectively own 10% or more of the entity, then you will need to obtain a legal opinion from an ERISA or tax attorney addressed to you in which the loan transaction is discussed in detail prior to STRATA processing your investment instructions. If you, any family member or disqualified persons collectively will own 50% or more of the borrowing entity, STRATA will not process the investment even if you are able to obtain a legal opinion.
CROWDFUNDING
What is crowdfunding?
Crowdfunding generally refers to a financing method in which money is raised through soliciting relatively small individual investments or contributions from a large number of people.
Can my IRA participate in crowdfunding investments?
Yes. You may direct your IRA to invest through crowdfunding portals to participate in a wide range of investment options including real estate, private equity, venture capital and more.
How can I learn more about crowdfunding?
An Investor Bulletin published by the SEC provides specific details and investor education about crowdfunding.
FUTURES
Can I direct my IRA to invest in a futures account?
Yes. Your IRA can establish a trading account through a futures commission merchant (“FCM”) where you or your broker can place trades in commodities, futures, and forex. Please refer to our Futures Investment Checklist for more details.
Can I trade my own futures account, or does it need to be a managed account?
You may either trade your own account, or you may designate a broker or other third-party to trade futures on behalf of your STRATA account.
Can my STRATA account participate in a commodity pool?
Yes. Please refer to our Private Equity Investment Checklist for more details of directing an investment into a commodity pool.
Where can I learn more about commodities and futures investing?
You may find helpful resources by visiting the websites of the US Commodity Futures Trading Commission (www.cftc.gov) and the National Futures Association (www.nfa.futures.org).
GOLD AND PRECIOUS METALS
Does STRATA buy, sell or exchange Precious Metals?
No, STRATA does not buy, sell or exchange precious metals. You will need to negotiate the purchase, sale or exchange of any precious metals through the broker of your choice.
What types of Precious Metals can I invest in?
To qualify as IRA allowable precious metals and be accepted by STRATA, the following minimum fineness requirements must be met:
Gold must be 99.5% pure, silver must be 99.9% pure, and platinum and palladium must both be 99.95% pure.
Bars, rounds and coins must be produced by a refiner, assayer or manufacturer that is accredited/certified by NYMEX, COMEX, NYSE/Liffe, LME, LBMA, LPPM, TOCOM, ISO 9000, or national government mint and meeting minimum fineness requirements.
Proof coins must be encapsulated in complete, original mint packaging, in excellent condition, and include the certificate of authenticity.
Small bullion bars (other than 400-ounce gold, 100-ounce gold, 1000-ounce silver; 50-ounce platinum and 100-ounce palladium bars) must be manufactured to exact weight specifications.
Non-proof (bullion) coins must be in brilliant uncirculated condition and free from damage.
Are there any Precious Metals that cannot be held in an IRA?
Precious metals which do not meet the following requirements do not qualify as IRA allowable precious metals and will not be accepted by STRATA:
Must be ISO certified and mint marked.
Gold must be 99.5% pure, silver must be 99.9% pure, and platinum and palladium must both be 99.95% pure.
Bars, rounds and coins must be produced by a refiner, assayer or manufacturer that is accredited/certified by NYMEX, COMEX, NYSE/Liffe, LME, LBMA, LPPM, TOCOM, ISO 9000, or national government mint and meeting minimum fineness requirements.
Proof coins must be encapsulated in complete, original mint packaging, in excellent condition, and include the certificate of authenticity.
Small bullion bars (other than 400-ounce gold, 100-ounce gold, 1000-ounce silver; 50-ounce platinum and 100-ounce palladium bars) must be manufactured to exact weight specifications.
Non-proof (bullion) coins must be in brilliant uncirculated condition and free from damage.
What research should I do before I choose a Precious Metal dealer?
We encourage you to do your own research and educate yourself before choosing a dealer and buying precious metals with your IRA funds. Few states have regulatory oversight of precious metal dealers. Therefore, it's important that you do your own due diligence to protect your retirement savings.
Use sites such as the Better Business Bureau (www.BBB.org) to find whether the dealer is accredited and rated, how long the dealer has been in business, and review the dealer's history of any consumer complaints or disputes. Be aware of any dealer that you can't find any information about.
Check to see if the dealer is a member of any industry trade groups such as American Numismatic Association (ANA), Professional Numismatics Guild (PNG), and Industry Council for Tangible Assets (ICTA). To be a member, dealers must agree to abide by a code of conduct and be willing to resolve customer disputes.
Be aware of dealers that use high-pressure sales tactics in their sales calls to try to get you to do business with them - and don't reveal any personal information about your income, your age or your assets, including how much you may have in savings or retirement accounts.
Read the recent Precious Metal Fraud Advisory issued by the U.S. Commodity Futures Trading Association, and view the CFTC's consumer protection video on Precious Metals Fraud.
Be familiar with the different pricing terms (spot, bid and ask) and understand what they mean.
STRUCTURED SETTLEMENTS
What are structured settlement investments?
A structured settlement is a tool utilized in the resolution of personal, physical injury claims. In certain circumstances the annuity owner may then sell all or a portion of his/her future income stream for a lump sum payment.
Can I direct my IRA to invest in structured settlements or secondary market annuities?
Yes. You may direct your IRA to purchase structured settlements or payment streams from secondary market annuities. Please refer to our Investment Checklist for Structured Settlements for more details.
PUBLIC INVESTMENTS
Can I direct my IRA to invest in publicly-offered investments?
Yes. STRATA will process the purchase of publicly-offered investments such as public, non-traded REITs or BDCs, public LPs or public LLCs. Please refer to our Investment Checklist for Public Investments for more details.
Can I hold stocks, bonds, mutual funds or ETF’s in my IRA?
Yes, but only if you direct the purchase through a trading account with a brokerage firm of your choice. Please contact us for more information on establishing a trading account since STRATA does not directly hold tradable securities.
FEES
What are STRATA’s service fees?
STRATA’s account fee schedule may vary depending on the type of investments you hold and the services you require. To learn more about STRATA’s service fees, please see our IRA Fee Schedule for more information.
Why do I pay an annual Storage Fee to STRATA?
STRATA assesses an annual fee as the acting custodian on the account. Our custodial duties include:
the recording of contributions, transfers, and rollovers to the account,
the accounting for your investment(s),
issuing quarterly statements,
filing the required IRS reports, and
facilitating your investment, distribution, and other service requests.
How are my annual account fees calculated?
The annual account fees are generally based on the account type and asset holdings. Please be aware that your cash balance is considered an account asset and is included in the account value total.
REQUIRED MINIMUM DISTRIBUTIONS
Are self-directed IRAs subject to RMD’s?
RMDs apply to Traditional, SEP and SIMPLE IRAs, whether they are self-directed or not. Roth IRAs (self-directed or otherwise) do not require RMDs until the death of the owner.
When should I begin taking RMDs from my self-directed IRA?
In most cases you are required to take your first RMD by April 1 of the year following the year you turn 72 (or 70½ if you turned 70½ on or before December 31, 2019). After that, each yearly RMD must be taken by December 31. For example, if you turn 72 in 2021, you’ll need to take your first RMD by April 1, 2022, and your next RMD by December 31, 2022.
Will STRATA calculate my RMD for me?
Yes. STRATA provides an estimated RMD calculation for the accounts you hold with us by January 31 each year. As a courtesy, we provide RMD reminders throughout the year as well. We strongly encourage our account holders to act early.
Will STRATA automatically distribute my RMD for me?
Unfortunately, we are unable to process any distributions without express written consent from the account holder. However, satisfying your RMD requirement can be accomplished by simply completing our IRA Distribution Request Form. Fees may be associated with your request. You may refer to our STRATA IRA Fee Schedule for more information.
ACCOUNT SECURITY AND PROTECTION CONCERNS
Security Policy
While the Internet is generally not a secure environment and no one can guarantee absolute security, we strive to provide our clients with a level of comfort about the security of the information they store and transmit through our website. Protecting your personal information is of vital importance to STRATA Trust. It is our goal that all information submitted, and transactions completed through this Website are confidential and secure. To read our full security policy, visit our Security Policy page.
Business Continuity
We maintain a comprehensive data recovery plan, including business continuity services and daily backup of data at a secure offsite facility. Strict policies are maintained to ensure the security of our clients’ records.
Client Information Privacy
As a regulated financial institution, it is our policy not to disclose, either directly or indirectly, any personal information about our clients to third parties without the prior written consent of the client, except for our legitimate business purposes and in compliance with all applicable laws and regulations. In addition, we do not provide account or personal information to outside companies that conduct independent telemarketing or direct mail marketing.
Professional Liability Insurance
Through Horizon Bank, we maintain a comprehensive insurance package, including financial institution bond policy, banker’s professional liability insurance and directors and officers’ liability insurance through underwriters rated A+ (excellent) by A.M. Best.
Regulatory and Audit Controls
As a subsidiary of Horizon Bank, we are regulated by the Texas Department of Banking, which conducts regular examinations of our operation. In addition, we are audited regularly by independent auditing firms for IRA compliance.