AN OVERVIEW OF ALTERNATIVE ASSETS IN SELF-DIRECTED IRAS

Transcription

1 AN OVERVIEW OF ALTERNATIVE ASSETS IN SELF-DIRECTED IRAS

2 AN OVERVIEW OF ALTERNATIVE ASSETS IN SELF-DIRECTED IRAS 1 THE UNTAPPED MARKET With th uncrtainty in today s financial markt, many advisors and thir clints ar sking options that allow thm to divrsify thir rtirmnt accounts byond mainstram invstmnts. Additionally, invstmnt issurs ar sking nw sourcs of capital for thir nw start-up, quity fund or ral stat dvlopmnt. That s whr th slf-dirctd IRA can provid a solution to both th advisor/ clint and th invstmnt issur. According to a rcnt Invstmnt Company Institut rport, IRAs hld $7.9 trillion in assts at yar-nd ICI also rports that onthird of US housholds, or narly 43 million, IRA Assts Othr assts 1 Lif insuranc companis 2 Bank and thrift dposits 3 Mutual funds 1 Othr assts includ individual stocks, individual bonds, closd-nd funds, ETFs and othr assts hld through brokrag or trust accounts. 2 Lif insuranc company IRA assts ar annuitis hld by IRAs, xcluding variabl annuity mutual fund IRA assts, which ar includd in mutual funds. 3 Bank and thrift dposits includ Kogh dposits. Data ar stimatd. Not: Componnts may not add to th total bcaus of rounding. Sourcs: Invstmnt Company Institut, Fdral Rsrv Board, Amrican Council of Lif Insurrs, and Intrnal Rvnu Srvic Statistics of Incom Division. S Invstmnt Company Institut, Th US Rtirmnt Markt, Fourth Quartr 2016.

3 AN OVERVIEW OF ALTERNATIVE ASSETS IN SELF-DIRECTED IRAS 2 ownd at last on typ of IRA as of mid Only a small portion of thos funds ar invstd in tru altrnativ assts, which opns a nw markt for advisors and clints looking to divrsify thir rtirmnt portfolios as wll as providing invstmnt issurs with a nw sourc of potntial invstmnt capital. THE JUMPSTART OUR BUSINESS STARTUPS ACT (JOBS ACT) In April 2012, Congrss passd th Jumpstart Our Businss Startups Act (JOBS Act). Sction 201(a)(1) of th JOBS Act dircts th SEC to rmov th prohibition on gnral solicitation or gnral advrtising for scuritis offrings rlying on Rul 506, providd that sals ar limitd to accrditd invstors and an issur taks rasonabl stps to vrify that all purchasrs of th scuritis ar accrditd invstors. By rquiring th SEC to rmov this gnral solicitation rstriction, Congrss sought to mak it asir for a company to find invstors and thrby rais capital. 2 In addition, Titl III of th JOBS Act cratd a fdral xmption undr th scuritis laws to prmit crowdfunding as a mthod to offr and sll scuritis. 3 Bcaus of this lgislation, invstors hav gratr accss to a wid array of invstmnts, and invstmnt issurs hav a gratr sourc of invstmnt capital to fund thir nw vnturs. THE IRA CUSTODIAN As a dirctd custodian, STRATA Trust Company ( STRATA ) provids th uniqu ability to custody slf-dirctd IRAs that Ral Estat Crowdfunding Privat Equity Prcious Mtals

4 AN OVERVIEW OF ALTERNATIVE ASSETS IN SELF-DIRECTED IRAS 3 hold a wid array of altrnativ and privat placmnt invstmnts such as privat LLCs, LPs, corporat dbt, crowdfunding quity/ dbt offrings and corporat dbt offrings. W offr advisors and thir clints complt invstmnt flxibility byond what most banks, brokrag firms and othr financial institutions allow. In gnral, custodians provid procssing srvics and rcordkping for th IRA, such as quartrly and annual statmnts to th clint and/or advisor, and thy complt tax rporting, such as filing forms 1099R and 5498 with th IRS. As a dirctd custodian, STRATA dos not approv or ndors th actual invstmnt, and w do not prform any du dilignc or dtrmin th suitability of any invstmnt. Th clints and/or thir advisors ar solly rsponsibl for th slction, rtntion and managmnt of th assts in thir IRA and should consult with lgal or tax advisors prior to dircting STRATA to procss any invstmnt on bhalf of thir IRA. BENEFITS OF THE SELF-DIRECTED IRA Th opportunity to invst using IRA funds can hlp advisors, thir clints and invstmnt issurs in svral ways: Divrsify invstmnt holdings that may not corrlat dirctly to th stock markt. Capital gains ar tax-dfrrd in a Traditional IRA and tax-fr in a Roth IRA (pnaltis may apply for arly withdrawals).

5 AN OVERVIEW OF ALTERNATIVE ASSETS IN SELF-DIRECTED IRAS 4 Slf-dirctd IRAs may also b an option for individuals who don t hav immdiat liquidity nds sinc many altrnativ assts hav a longr hold priod than traditional markt scuritis. Funds ar mor radily availabl for invsting. Unlik disposabl incom, rtirmnt account mony is usually asir and fastr to accss onc th invstor dcids to invst. An IRA custodial rlationship nhancs your fundraising. If you hav a rlationship in plac with an IRA custodian whn you approach invstors, simply mntioning that you can accpt thir rtirmnt funds can provid anothr avnu for an invstor to considr. Invstors ar sking mor altrnativ invstmnts. With th currnt conomic situation, it s no scrt that mor invstors ar trading thir attraction to th stock markt for altrnativ invstmnts. Incras th prcption prospctiv invstors hav of you. By informing prospctiv invstors and prospcts about th opportunity to invst using thir rtirmnt funds, you can provid th valuabl knowldg of somthing thy may not hav thought was possibl. Many invstors still think that invstmnts in thir rtirmnt accounts ar limitd to stocks and mutual funds. Whil this is slowly changing, many ar not awar that invstmnts in ral stat, privat quity and much mor can b mad in a slf-dirctd IRA. IMPORTANT INFORMATION REGARDING SELF-DIRECTED IRAS Unrlatd Businss Taxabl Incom Limitd partnrships, limitd liability companis and othr ntitis that carry on an unrlatd businss or borrow funds to financ th acquisition of proprty may gnrat Unrlatd Businss Taxabl Incom (UBTI). UBTI is gnrally rportd on Schdul K-1 issud by th ntity. If th UBTI attributabl to a rtirmnt account xcds $1,000 for any taxabl yar, IRS Form 990-T must b fild along with th appropriat amount of tax, payabl from th IRA. STRATA dos not monitor UBTI and dos not prpar Form 990-T. If th tax is applicabl, th clint must

6 AN OVERVIEW OF ALTERNATIVE ASSETS IN SELF-DIRECTED IRAS 5 prpar, or hav prpard, Form 990-T and forward it to STRATA along with an Expns Paymnt Form to pay th tax from th IRA. If rquird to fil Form 990-T, th clint must apply for and utiliz an Employr Idntification Numbr ( EIN ). Clints may not us STRATA s EIN or thir social scurity numbr. For mor information on UBTI, plas rfr to IRS Publication 598. Fair Markt Valu of Altrnativ Assts Th IRS rquirs custodians to rport th valu of IRA assts on an annual basis. In ordr for STRATA to custody altrnativ assts, invstmnt sponsors must commit to provid STRATA with an updatd valuation on at last an annual basis. Othrwis, th clint must obtain an indpndnt third-party valuation ach yar for th asst. Prohibitd Transactions Intrnal Rvnu Cod Sction 4975 dfins a prohibitd transaction as a transaction btwn a plan (th IRA) and a disqualifid prson. In gnral, "disqualifid prsons" ar dfind to b th accountholdr, othr fiduciaris, crtain family mmbrs (linal dscndants and spouss of linal dscndants) and businsss undr th accountholdr s (or disqualifid prson s) control. Plas rviw th Cod for spcific information and dfinitions. Othr usful rsourcs ar IRC Sction 408()(2)(A), Publications 560, 590-A and 590-B. If th IRA ngags in a prohibitd transaction, th IRA will b disqualifid and los its tax-xmpt status. Th IRA will b tratd as distributing all its assts, and th clint may also b subjct to additional taxs and pnaltis. Clints and advisors should rviw th applicabl cods and consult with lgal or tax advisors for mor information.

7 AN OVERVIEW OF ALTERNATIVE ASSETS IN SELF-DIRECTED IRAS 6 ABOUT US STRATA Trust Company ( STRATA ) has quickly catapultd to bcom a prmir national custodian for altrnativ assts and non-xchang tradd invstmnts in slf-dirctd IRAs. Formrly known as Slf Dirctd IRA Srvics, Inc., STRATA has bn hlping invstors us thir rtirmnt account funds to invst in altrnativ and traditional invstmnts sinc STRATA currntly srvs ovr 30,000 individuals nationwid with ovr $1.5 billion in assts undr custody Woodway Driv, STE 200, Waco, TX info@stratatrust.com With offics in Waco and Austin, Txas, our tam s vast xprinc in handling th dtails and complxitis that altrnativ invstmnts rquir is unrivald. Our sasond managmnt tam s xprinc in th custody of altrnativ assts spans ovr 150 yars. With a wll-stablishd rputation for honsty and intgrity, STRATA is committd to dlivring rsponsiv, flxibl and innovativ solutions. At STRATA, w work to nsur that th highst standards for safty and soundnss ar mt. As a subsidiary of Horizon Bank, SSB, STRATA is a Txas-chartrd trust company rgulatd by th Txas Dpartmnt of Banking, which has long st th bnchmark among stat banking rgulators. Strict controls ar in plac to nsur th safty of uninvstd cash and indpndnt auditors ar rtaind to conduct rgular audits of our oprations.