Crowdfund Investing a Self-Directed IRA

Unless you have been living off the grid for the last several years, chances are that you have heard the term “crowdfunding” floating around in the media. Simply stated, crowdfunding is a way of funding a project, venture or cause by raising small amounts of capital from a large number of investors through a crowdfunding site. With fears of market uncertainty and possible recessions following the 2008 financial crisis, a new generation of investors has emerged and they are eager to back a wide range of business and entrepreneurial ventures. With the help of popular TV shows such as Shark Tank and websites such as Kickstarter and IndieGogo, investment crowdfunding has been embraced by investors seeking to support a wide range of equity and debt crowdfunding endeavors which include alternative finance, real estate development, solar energy, breweries and distilleries, farming, technology, art, environmental and social impact initiatives and much more.

Crowdfunding: Investing for the new generation

Since the SEC crowdfunding rules became effective in 2016, any investor now has the opportunity to invest in capital raising activities for start-up and early stage businesses, large company projects and a multitude of social impact causes. Investment opportunities in private equity and debt deals, once reserved only for angel investors and accredited investors, are now accessible to the public through investment crowdfunding sites. Since 2010, crowdfunding platforms have helped raise over $34 billion globally. Private debt platforms, commonly referred to as marketplace lending platforms, have captured most of the market with $25 billion raised, while private equity platforms have raised $2.5 billion. Today, there are around 200 U.S. based crowdfunding platforms with over 44,000 investors. The investment crowdfunding market is still relatively young, but it’s growing at a rapid pace – and some project the industry to grow to over $300 billion by 2025.

Investing in the little guy

Investment crowdfunding is a proven game-changer for entrepreneurs raising funds for start-up or early stage business opportunities and seeking alternate ways to finance their growth and expansion. Historically, the initial capital funding has come from friends, family and customers – and now funding can come from passionate investors who have no tie to the brand or product. In return these investors earn an incentive, whether it is an equity stake in the company or product, or the expectation that interest will be paid on a loan that provides debt financing to source capital for the company or cause.

A new world of opportunity

Using a self-directed IRA to invest in crowdfunding is a great way for investors to contribute to start-up ventures, business expansions and other ground floor opportunities. In the past, only accredited investors with proven financial security could acquire private equity and debt opportunities through crowdfunding. Now with new regulations in place all investors can take advantage of crowdfunding investment options. Crowdfunding investment options have been a popular place for retirement investors looking to use their IRA or 401(k) money to invest in private equity or debt opportunities through a self-directed IRA.

Benefits of crowdfund investing with your IRA:

  • New opportunities – Finding investment opportunities in privately held ventures used to require having a vast network of business contacts. Now, with crowdfunding investment platforms, regular investors now have direct access to these types of investments.
  • Tax sheltered investing– Generally speaking, when an IRA is used to invest in crowdfunding opportunities, it’s usually exempt from state and federal taxes. (For an investment that is structured as a debt (note) and produces income from providing a product or service, there may be potential for an IRA investor to have exposure to Unrelated Business Taxable Income, or UBTI).
  • Diversification – Crowdfunding and marketplace lending platforms give investors access to many different asset types, including real estate, consumer and corporate debt, limited partnerships, limited liability companies, private stock, convertible and promissory notes and many more.
  • Increased transparency and lower costs – The crowdfunding process allows investors to benefit from the efficiency gained through timely, transparent investment information and lower search and transaction costs achieved when online crowdfunding platforms make their offerings accessible to the masses.
  • Invest as much or as little as you want – For the most part, crowdfunding investment sites will allow you to invest the amount that works best for you – from $100 to $100,000+.

If you are interested in knowing more about getting started with a crowdfunding investment using your self-directed IRA click here.

Investing in crowdfunding with a self-directed IRA (SDIRA) can be daunting if you’ve never done it before.  However, an experienced custodian like STRATA can help you understand the process and explain the IRA rules. We’re here to make it easier for investors and their advisors.

STRATA Trust Company recognized the investment potential for clients and in 2010 became the first IRA custodian to provide self-directed IRA custody services for crowdfunding platform investors, working with some of the largest crowdfunding investment portals and marketplace lending platforms in the country.

If you have questions about crowdfunding in a self-directed IRA or you’re ready to open an account – feel free to give us a call at 866-928-9394.

 

ABOUT STRATA TRUST COMPANY

When alternative IRA custody is this easy, the possibilities are endless.

Founded in 2008, STRATA Trust Company has built a reputation delivering streamlined and straightforward custody. Our service-driven team has helped thousands of investors and investment professionals unlock opportunities in self-directed retirement accounts across a wide range of alternative investments. Formerly known as Self Directed IRA Services, Inc., STRATA has strategically realigned to support a broad range of investment professional partners in growing their IRA asset base – always with an eye on the future.

With offices in Austin and Waco, Texas, STRATA operates as a Texas-chartered trust company with direct oversight by the Texas Department of Banking. Led by a seasoned management team with over 150 years of collective experience, 33,000+ investors empowered and over $1.8 billion in assets under custody, our customers experience a clear difference in our approach to IRA custody.

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