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What to Know Before Investing in Private Equity

Private Equity at a glance: Here's what you need to know before initiating a private equity investment.

Any account offered by NDTCO can invest in private equity. The ability of your account to invest in a private company gives you the opportunity to exercise your personal market knowledge and investment expertise.  

The returns of a private equity investment can generate retirement wealth that is tax-deferred or tax-free depending on the account type. The IRA ownership of private equity is usually expressed as a percentage of ownership or shares of stock.  

Investing in private equity as an asset in your self-directed IRA is one way to diversify your retirement portfolio. Unlike publicly traded securities, private equity does not have public disclosure laws associated with it. Therefore, the investor can use personal knowledge and experience when investing in private companies with a self-directed IRA.   

You, the IRA holder, select a company/entity in which you’d like to invest. You agree on terms with the company and direct us to send money from your IRA to close the deal. We make sure that the paperwork substantiates that the private equity investment is owned by your IRA, and therefore deserves the tax benefits associated with the account type.  

Possible Structures 

  • Limited Partnerships 
  • Limited Liability Companies 
  • Pre-IPO Companies 
  • C-Corps 
  • Limited Liability Partnership 
  • Land Trusts 
  • Franchise Businesses 
  • Start Ups (banks or companies) 

*An IRA can’t invest in an S-Corp, nor can it be a General Partner in a General Partnership. 

Due Diligence 

As the IRA holder, you are responsible for performing due diligence on your IRA’s investments. Neither the IRS nor NDTCO researches or endorses the investments, businesses, or principals involved in your IRA’s transactions. A competent professional in the legal, financial advice or accounting fields can also be engaged if you need additional help deciding if the investment being considered is legitimate, meets your risk tolerance, and is right for your investment goals.  

New Direction Trust Company reviews the investment documents to ensure it contains the required content, however it is your responsibility to create, monitor and execute the terms and conditions of your investments.  

Disqualified Persons 

All IRAs have a list of people who are disqualified from having certain interactions with that account (called Disqualified Persons). Below is a graphic that depicts related persons that are considered to be “disqualified” by the IRS. Keep in mind that any entity that is owned or controlled by a Disqualified Person or combination of Disqualified Persons may also be disqualified. Visit this page for everything you need to know about disqualified persons or prohibited transactions.  

Additionally, you cannot receive the dividend or distribution payments personally, they must come to the account. You cannot invest retirement funds with a disqualified person or entity. You can learn more about Prohibited Transactions here.  

NON-DISQUALIFIED PERSONS INCLUDE: 

  • Brother 
  • Sister 
  • Brother-in-law 
  • Sister-in-law 
  • Niece 
  • Nephew 
  • Aunt 
  • Uncle 
  • Cousin 

DISQUALIFIED PERSONS & ENTITIES INCLUDE: 

  • The account holder (you) 
  • The account holder’s linear ascendants (parents, grandparents, etc.) 
  • The account holder’s linear descendants (children, grandchildren, etc.) and their spouses 
  • Fiduciaries to the account (accountants, financial advisors, attorneys, etc.) 
  • Tax-advantaged savings accounts held by any of the aforementioned individuals 
  • Businesses or entities owned or controlled by any of the aforementioned individuals 
  • Spouse 
  • Children of spouse 

Asset and Liquidity Considerations 

It is important to make sure the entity in which you would like to invest will allow the ownership to be assigned or reassigned if you think that you may convert, transfer, or distribute all or part of your IRA investment in the future. Also, keep in mind that some investments do not allow the investor to sell ownership units or withdraw funds during a fixed period. The liquidity of your investment is an important piece of your due diligence. If you happen to be in a required minimum distribution status, this may affect your ability to take your mandatory distributions from the account.  

Fees 

ANNUAL ADMINISTRATION FEES 

(Assessed and billed annually per asset) 

Private Equity Assets 

$390 per asset 

PROCESSING FEES 

Purchase, Sale, or Exchange 

$130 

OUTGOING MOVEMENT OF FUNDS 

Due when funds leave your account 

ACH 

$0 

Check 

$20 

Cashier or Official Bank Check 

$35 

Wire 

$35 

International Wire 

$35 

Overnight Mail 

$50 

Returned Item or Stop Payment Request or Void Check 

$50 

Annual Administration fees are charged based upon the custodial services provided and are not dependent upon an investment’s performance. Thus, Administration fees are non-refundable regardless of whether the account holder is unable to generate profits or returns.