Crowdfunding is reshaping the financial industry and has gained a lot of attention over the past few years. A growing number of investors have wondered if they can use their IRAs to invest through different crowdfunding platforms, and the answer is YES!

Midland IRA allows clients to invest through the platform of their choice, as long as the platform itself accepts IRAs.

Crowdfunding has been helping individuals, companies, and groups raise capital for decades. With a self-directed IRA, investors now have the freedom to take advantage of these opportunities, as well. Midland IRA makes it easy for clients to take control of their retirement funds and choose assets they desire as investments.

What is Crowdfunding?

Crowdfunding is a popular way entrepreneurs raise funds to gain capital for start-up ventures, business expansions, and other opportunities. The goal is to obtain small amounts of funds from rather large groups of people (family, friends, other investors) to amass the capital needed for this purpose.
In the past, only accredited investors boasting large net worths and proven financial security could acquire private stock and equity opportunities. Recent SEC rulings within the JOBS Act now permit average, non-accredited investors to partake in these offerings.

Benefits of Crowdfunding Platforms

Reduced costs

Investors that want to invest in private deals typically have three options to do so. They can find and manage the investment alone, they can join a group that will source deals for them, or they can invest through a professional venture firm. All three of these options can be costly to individual investors. Crowdfunding makes the process efficient and accessible to the masses, so costs associated with these investments are typically less than sourcing these deals in the traditional manners.

Access to new opportunities:

Private companies are not allowed to announce that they are fundraising. Finding and having the opportunity to invest in privately-held ventures as an individual requires having a vast network that can connect them to these companies. Investing through a crowdfunding platform allows direct access to these investments.

Diversification:

Crowdfunding gives investors access to many different asset types including limited partnerships, LLCs, real estate, convertible notes, promissory notes, private stock, and much more.

Understand the Limitations

No S-Corps:

IRAs cannot purchase s-corporation stock.

No self-dealing:

IRA transactions should be arm’s-length. Get familiar with and understand rules related to prohibited transactions and disqualified parties. Avoid investing an IRA with entities managed/controlled by the IRA owner, his/her family, or other disqualified parties.

UBIT may apply:

IRAs are intended for investment in passive, long-term growth opportunities. Investing an IRA into an operating business or leveraged investments may trigger a special tax called unrelated business income tax (UBIT).

No investment has guarantees:

Watch out for red flags. Any opportunity that offers guaranteed returns or seems too good to be true probably is. Visit our investor awareness page for more information and to read the SEC’s Investor Alert on Fraud in SD IRAs.

Seek advice from a licensed professional:

It’s always best to consult with a competent tax professional before entering into any investment.

Crowdfunding Process

Step 1 — Choose a Platform:

Make sure the platform of your choice accepts IRAs.

Step 2 — Open and Fund Your Account Online:

Establishing your account can be done electronically. It is important to note that depending on how you plan to fund your account, an original pen-ink signature may be required on your IRA-to-IRA transfer form.

Step 3 — Choose Your Investment:

Select your investment and direct Midland IRA to purchase that investment in the name of your IRA. Midland gathers and sends the necessary investment documents for you to read and approve electronically. Once you have approved everything, Midland processes your request and sends the funds to purchase your investment.

Step 4 — Monitor Your Account:

Now that you have made your investment you can log in to your Midland IRA account and track the progress.

Contact Midland IRA today to learn more!