From Self-Directed IRA To Startup Equity: Angel Investing 101

Angel investing provides capital to an early-stage/startup company that is not publicly traded (pre-IPO). In exchange for their financial infusion, the investor receives equity in the company. This is a type of private equity funding, but with angel investing, the “angel” status can also include mentorship and business guidance. It also allows for relatively smaller sums of money to be invested compared to venture capital or some private equity funding.

Historically, angel investors were high-net-worth individuals. However, those with healthy self-directed IRAs (SDIRAs) can also use funds from their retirement account to make this investment, which is among the many alternative assets these retirement plans allow.

Why People Become Angel Investors

People become angel investors for several reasons. Some believe in a founder’s business plan and see potential for growth, scalability and success. Others are drawn to a business model that appeals to them and aligns with their interests based on what the company offers or who it serves. And many are excited by the chance to support startups that are market disruptors or creating entirely new markets, giving them the opportunity to be part of something new and exciting.

The early stage of a business’s life cycle can range from the very beginning of the founder’s vision—before any revenue is generated—to a few years in, when the company is starting to grow and has a customer base, but still needs outside funding.

I should note that angel investing carries relatively high risk since, as a startup, the company may not flourish; on the flip side, such an investment may yield strong returns if the business succeeds. Therefore, investor involvement beyond financial support—such as offering operational, industry or leadership expertise—can help the business grow and help the investor earn that equity stake.

Using A Self-Directed IRA To Make Angel Investments

Self-directed investors are used to making their own investment decisions, including conducting full due diligence before investing to reduce the risk of fraud or potential loss. As with many alternative assets allowed in self-directed retirement plans, angel investments are more long-term and relatively illiquid.

I often counsel clients to educate themselves about the industry or sector the startup is entering and to understand the founder’s short-term and long-term plans. It’s also important to look under the figurative hood to answer foundational questions such as:

• Who are the players/leaders? Are their experience and skills right for this field? Do I want to enter a relationship with these entrepreneurs
• How will this business serve its market?
• What is the overall market potential for its goods or services? Are they in demand?
• How soon is it likely that the company will start making money?
• Where can I make a strong impact through my involvement?
• What is my exit strategy (and ROI) if the company goes public, is sold or merges with another?

Making The Investment: Steps And Considerations

Once you have the necessary insights to make the investment, you will negotiate the terms directly with the owner. This includes how much the investment will be and the equity stake that will be given in exchange. Remember that the SDIRA is the investor—not the account owner—and certain protocols must be followed for the investment to meet IRS rules.

Once the terms are worked out, the investor will send instructions and all required documentation to the self-directed IRA custodian. These documents include the custodian’s internal forms, such as the investment authorization, plus the subscription agreement between your account and the startup, the company’s operating agreement and the shareholder or investment agreement.

Another way to invest is to join an angel investor network. This is an entity that provides access to opportunities, often in specific industries (such as healthcare, technology or manufacturing), and provides a platform to connect with other investors who wish to pool resources to make investments. An SDIRA can partner with another to invest in alternative assets, and multiple account owners may have different areas of expertise to contribute to the early-stage company’s development.

Whichever way you choose to become an angel investor, my advice is always the same: Do your homework, understand the asset and work with a custodian that can guide you through the process if you need some support.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Read the full article about investing in real estate syndications at https://www.forbes.com/councils/forbesfinancecouncil/2026/02/11/from-self-directed-ira-to-startup-equity-angel-investing-101/.

All of Raskulinecz’s Forbes Finance Council content is at https://shorturl.at/JRAgV.

Digital Investments as Alternative Assets in a Solo 401(k): Premium Domain Names

Digital technology has opened the door to a new type of entrepreneurship—and investing opportunities with a self-directed solo 401(k) account. In this article, we look at investing in premium domain names, but first…

What is a solo (k)?
This is a retirement account, similar to a traditional 401(k) plan, but for self-employed business owners who don’t have any employees who meet the long-term, part-time rule associated with these plans (excluding one’s spouse or business partners). You can open a solo 401(k) regardless of your income level or type of entity, so the business could be a side hustle or a full-time enterprise.

The account owner can build up tax-deferred retirement savings but unlike a traditional 401(k) plan, a solo(k) can be self-directed, which allows individuals to include a broad array of alternative asset classes within the plan. Plus, as both the employer and (sole) employee, the investor can make much higher contributions than with an IRA (Traditional and Roth) and in some cases, may contribute more than the SEP IRA limit.

The business of digital investments in premium domains

A growing asset class in the world of digital investments is premium website domains. These investments comprise registering a domain name (a website URL) to resell later at a profit. The opportunities are ample:

• According to the Domain Name Industry Brief’s report for the third quarter of 2025, there were 378.5 million domain name registrations across all top-level domains.
• This represented an increase of 6.8 million registrations compared to the second quarter of 2025.
• Domain name registrations increased by 16.2 million, or 4.5%, year over year.

To be considered a premium domain, the asset is typically a highly brandable term that is short, highly relevant to the industry or company, and is “keyword-rich” (think Zoom.com or Hotels.com); plus, the domain name is or will be in high demand, since online visibility, memorable URLs, and brand equity are, well, at a premium in today’s crowded online world.

Investors purchase these high-value domains as short-term transactions that they will flip relatively quickly or use as longer-term investments to resell as the domain’s value increases. Through investments in premium domains, investors may also become entrepreneurs as they build a business around securing and selling these valuable assets and their solo 401(k) earns passive income.

Some benefits of investing in premium domains

• Passive income: The solo(k) plan earns revenue when the investor resells the domain on a secondary marketplace, through an auction, or via a “for sale” landing page. The solo(k) can also lease the premium domain name to a business for a monthly fee and generate recurring revenue.
• Flexibility: There is no limit to how many domains a business or solo(k) plan can hold, only that the asset must be held for appreciation and eventual resale.
• Monetization opportunities: The investor may set up a placeholder web page or site through the solo 401(k) that displays ads to monetize the domain while waiting for the right time to sell. It is best to do this through an LLC to avoid the account owner from working on behalf of the plan, which constitutes a prohibited transaction.

Beware of these risks

One restriction is that the domain registration and sale must not infringe on existing trademarks, which would make it a prohibited (unlawful) transaction. Instead, use generic or descriptive terms with perceived value.

Another issue to avoid is cybersquatting, which is when someone registers a domain that targets a trademark in bad faith and exploits a brand’s reputation and could be used for phishing scams.

Making the digital investment in a self-directed solo 401(k)

The asset must be titled in the name of the solo(k) (not the account holder’s name), and all purchases, registrations, and sales must be documented in the name of the plan with the plan’s EIN (employer ID number).

The plan maintains control of the digital asset(s). Therefore, to comply with IRS rules about these investments and avoid a prohibited transaction, the account owner cannot make these purchases for personal benefit or for the benefit of disqualified persons, and it must be transacted with a neutral (unrelated) third party.

Be careful about the potential to trigger unrelated business income tax (UBIT) if the investment activity is deemed by the IRS to be an active trade or business instead of a passive investment. See your tax advisor for questions on this.

As with all alternative assets held within self-directed retirement plans, the account owner must establish the fair market value of the premium domains every year for reporting on IRS Form 5498.

Another alternative asset of note: trademarks

Investors can also include digital trademarks within their self-directed IRA or solo 401(k) plan. These assets can grow in value as the brand they are associated with gains market share and brand recognition.

There are a few ways to leverage these business assets (which are intellectual property) with a self-directed IRA or solo 401(k).

• The retirement plan purchases existing trademark rights or portfolios, usually through a specialized exchange or by partnering with owners of intellectual property.
• The plan licenses registered trademarks through a royalty agreement and earns passive income from trademark use.
• The plan invests in a company that has strong trademark portfolios.

If you are new to self-direction as a retirement wealth-building strategy, but know and understand various types of alternative assets, we invite you to contact our helpful team to learn more about the many options and benefits of using a self-directed retirement plan. Connect with us during regular business hours at NewAccounts@NextGenerationTrust.com or 888.857.8058.

Investing in Book and Film Rights with a Self-Directed IRA

As we related in a prior article about music royalties and this one about investing in film or theatrical productions, there are various ways in which intellectual property as an alternative asset can become an investment in a self-directed IRA. Within this asset class are book rights and film rights, which provide account owners with portfolio diversity and the potential for royalty income (and more).

If you’ve ever read a book and thought, “This would make a great movie,” you are in the realm of book and film rights.

What are book rights?
In general, book rights are exclusive legal permissions to control the work’s (book’s) reproduction, distribution, or adaptation into another medium. These rights may be conferred to the author or publisher.

A SDIRA that invests in book rights may generate income from an advance, royalties, or by acquiring subsidiary rights like film/TV. When talking about this in the context of book-to-film, investing in book rights through one’s self-directed IRA means that the account owner uses the retirement plan to buy the license to then profit from the book’s adaptation into a movie.

The SDIRA can make a direct investment with the author. However, since book rights often lie with the book’s publisher, complex contract negotiations may be necessary to make this investment. Another way to do this is to invest via platforms on which a SDIRA can purchase shares in a book’s future royalty streams.

Investing in book rights involves acquiring different licenses for a book’s usage—and understanding the primary and subsidiary rights involved in book rights and licensing.

• Primary rights: these are for the book’s core publishing as a hard cover or paperback book, an e-book, or audio book.
• Subsidiary (expansion) rights: these can also be lucrative and include foreign translation and large print versions, audio books, serial versions (excerpts that appear in magazines, for example), educational use, merchandising, and film/TV/stage adaptation. Some subsidiary rights may be negotiated as exclusive licenses for specific territories, formats, or durations.

How to invest in book rights

As a self-directed investor, the account owner sends instructions to the SDIRA custodian to purchase specific rights from the author or original rights holder(s) for a set fee or royalty structure. The IRA can earn revenue by licensing these rights to specialized companies such as an audiobook producer, film studio, merchandise vendor, or a foreign publisher. It is up to the account owner to negotiate all terms of the investment, including publishing or distribution territory and advances and royalty percentages.

What are film rights?

As with book rights, film rights are legal permissions that give the holder the right to adapt intellectual property (like books) into a movie. Part of the investor’s due diligence regarding film rights investments are to understand option agreements, creator and producer compensation, how merchandising rights are governed by copyright law and marketing entities, types of film distribution deals, and determining who profits from the film’s screening across platforms (live cinema, streaming services, etc.).

Types and aspects of film rights are:

• Ownership: the creator (author, scriptwriter) owns the initial copyright and producers acquire rights (to develop it into a movie). After production, the production company usually owns the finished film, which is then licensed to distributors.
• Option agreement: this is when a producer pays for the exclusive right to develop a property for a set time; if the film is made, the full purchase price is paid.
• Purchase agreement: all the details about the fees, profit shares, and rights to sequels, spin-offs, and other markets (ancillary rights).
• Primary vs. secondary/ancillary rights: primary rights are for the film’s initial cinema release; secondary rights are for other media (TV, DVD, streaming, video games, and more)
• Public performance rights: needed to show films publicly outside the home (e.g., libraries, schools, theaters).

How to invest in film rights

To invest in film rights, the account owner sets up and funds the self-directed IRA, then uses the capital in the account to invest in film distribution or film production companies, which in turn acquire or produce the content.

The SDIRA may be a direct equity investor and have an ownership stake in the film; or it may participate in profit sharing and earn income as principal plus interest or through a share of profits from streaming royalties, box office revenue, or licensing deals. There are crowdfunding platforms that enable smaller investors (as opposed to large institutional investors or very high-net-worth individuals) to contribute.

As with any alternative asset, the account owner is responsible for understanding how intellectual property investments work in general, and how investing in book or film rights works specifically. In addition, as with any self-directed investment, the investor must make sure the transaction is structured in compliance with IRS investing rules regarding how to include these alternative assets in a SDIRA.

Do you have questions about self-direction as a retirement wealth-building strategy? Are you wondering about other types of alternative assets you are considering—and what these plans allow? Our helpful team of SDIRA professionals is here to give you answers. Contact us at NewAccounts@NextGenerationTrust.com or 888-857-8058 during regular business hours, or read our foundational white paper titled “Everything You Need to Know About Investing in Alternative Assets using a Self-Directed IRA.”

Next Generation Trust Company Shares Information on Investing in Cell Tower Leases with a Self-directed IRA

ROSELAND, NJ, January 08, 2026 /24-7PressRelease/ — Self-directed investors already know that real estate is one of the most popular alternative assets allowed in a self-directed IRA (SDIRA). A niche within the real estate market that may be included in a SDIRA is cell towers, such as cell tower leases or other tower-related investments.

“Cell towers are critical infrastructure for wireless communication, leased by major carriers to host their equipment for anywhere from five to 30 years. Plus, the towers can support multiple tenants, making them good long-term investments,” said Jaime Raskulinecz, CEO of Next Generation Trust Company, a custodian of self-directed retirement plans. Its sister firm, Next Generation Services, provides full account administration and transaction support.

Cell towers are the tall macrocell structures that resemble TV and radio towers as well as small cell structures in public spaces. The Wireless Infrastructure Institute reported that in 2024, there were more than 154,800 purpose-built towers and 445,900 macrocell sites and outdoor small cells in operation, and investment by the U.S. wireless infrastructure sector was over $63 billion.

Cell tower investment offers several benefits to self-directed investors, who may include a broad array of alternative assets in their IRAs, health savings accounts, solo k plans, and Coverdell education savings accounts. These benefits and other factors regarding this asset class are outlined in a recent blog article published on the Next Generation website.

“Other ways to diversify a self-directed retirement portfolio with this asset class are for the self-directed IRA to purchase and own the ground lease of the existing tower itself, or invest in a publicly traded tower REIT (real estate investment trust) or infrastructure fund that specializes in this growing real estate asset class,” added Raskuinecz.

The article also shares information about another niche real estate investment—billboards. Like cell towers, investing in billboards offers a hedge against market volatility and inflation and can deliver steady, contractual passive income over the long term.

Read the full article at https://shorturl.at/s68Z8. More information about self-direction as a retirement wealth-building strategy is at https://www.NextGenerationTrust.com.

About Next Generation
Next Generation Trust Company is a custodian of self-directed retirement plans, chartered in South Dakota. Its sister firm, Next Generation Services, provides comprehensive account administration and transaction support. The neutral third-party professionals at Next Generation expertly guide clients and their trusted advisors as part of their white glove, personalized service for a seamless transaction experience from start to finish and educate consumers and professionals about self-directed retirement plans and the many alternative assets these plans allow. For more information, visit www.NextGenerationTrust.com.

Investing in Cell Tower Leases with a Self-directed IRA

There is a niche in the real estate market that’s ripe for self-directed investing: cell towers. Individuals with a self-directed IRA (SDIRA) can diversify their portfolio by including cell tower leases or other tower-related investments within their retirement plan.

Cell tower basics

Cell towers are critical infrastructure for wireless communication. They are leased by major carriers to host their equipment and the towers can support multiple tenants. These can be good long-term investments, as lease agreements usually run from five to 30 years, with built-in rent escalations and renewal options.

Cell towers are not only the tall macrocell structures that resemble TV and radio towers; they may also be small cell structures in public spaces that may also incorporate outdoor lighting.

According to the Wireless Infrastructure Institute, in 2024 there were more than 154,800 purpose-built towers and 445,900 macrocell sites and outdoor small cells in operation, and investment by the U.S. wireless infrastructure sector was over $63 billion.

Benefits of cell tower investment

• Stability – This alternative asset class offers a stable, long-term income stream that—like so many others—have low correlation to traditional stocks and bonds. Typical leases with major wireless carriers and large tower companies are 10 years with five-year renewals. The renewals can stretch out that cash flow for 25 or more years.
• Inflation safeguard – As a hedge against inflation, look for cell tower lease agreements that have built-in yearly rent escalations that are agreed upon in advance; these help make cell tower investments somewhat inflation-proof.
• High growth potential – With the increasing demand for wireless data from consumers and 5G network buildouts by wireless carriers, there is high potential for strong growth from this sector. And because towers can accommodate up to four different tenants on one structure, this increases revenue potential per site.
• Low maintenance – Wireless carriers (the tower tenants) are the parties responsible for maintaining their equipment, which helps deliver a high margin return for the tower owner. In addition, cell towers use triple-net leases which means the tenants (the wireless carriers) pay the property taxes, insurance, and maintenance expenses plus their rent. Therefore, the expenses the SDIRA would have to pay will be relatively low (if anything).

Other ways to invest in the cell tower market

In addition to investing in the tower leases, the SDIRA can directly purchase and own the ground lease of the existing tower itself, or invest in a publicly traded tower REIT (real estate investment trust) or infrastructure fund that specializes in this growing real estate asset class. Tower REITs lease space to cell phone and other telecommunication providers.

Investors can also include private equity funds that operate in the cell tower space (and buy shares in tower-owning companies) within their SDIRA.

As long as the transaction complies with IRS rules and the plan custodian gives the green light, the investment is a go (with the assumption that the account owner has performed due diligence about the asset class, has reviewed the lease agreements or fund prospectus, and understands they are responsible for management or oversight of the investment.

Potential downsides of cell tower investments

Investors should be aware of possible sensitivity to interest rate increases; zoning regulations and regulatory shifts that affect the industry; municipal and public concerns about the structures’ impact; and understand how asset valuations are derived as well as how emerging technologies may affect the cell tower market.

Another niche real estate investment: billboards

Billboards are ubiquitous along highways and like cell towers, they are a niche real estate investment that is less correlated with stock and bond markets, so they offer a hedge against market volatility and inflation. And as with many alternative assets, they can deliver steady, contractual passive income over the long term.

The self-directed retirement plan owns the land or the billboard structure (along the highway or high-traffic urban centers). Investors earn returns by leasing the advertising space to advertising or media buying agencies.

ROI is especially strong for digital billboards that can host multiple ads and advertisers, providing increased revenue per board. When the SDIRA owns the billboard itself, the account owner can contract with a third party to handle the leasing and renewals of the billboard space, which avoids any inherent issue with the account owner providing services (self-dealing, a prohibited transaction).

Among the areas investors should research are site location, regulatory compliance matters, and lease terms in the local market.

Want to know more about investing in all sorts of alternative assets through a self-directed IRA? Give our team a call at 888.857.8058 or email NewAccounts@NextGenerationTrust.com with your questions about self-direction as a powerful retirement wealth-building strategy that builds on assets you already know and understand.

Investing in Theatrical Productions, Movies and TV Shows Through a Self-Directed IRA

You might not have the experience to be a theatre or movie director, but you can direct your investments toward theatrical productions and other creative output with a self-directed IRA. (And if you work quickly now, you might be able to invest in a Broadway show before this season ends!).

Using funds in a self-directed IRA to finance a live show, an independent film, or TV program is an interesting way to cultivate your creative side—and develop a more diverse retirement portfolio. Given the ever-increasing proliferation of streaming services and the content they deliver you may find numerous opportunities to invest in productions of all kinds and align your investments with your interest in the performing and visual arts.

How to invest in a Broadway show

Investing in this alternative asset means your self-directed IRA purchases a share of a production’s capitalization. The Broadway show forms an LLC for financing and producing the specific production and investors are limited partners in the LLC. The lead producer is the managing member/general partner. A play may need anywhere from $3-$10 million to mount while musicals require $12-25 million or more (the big spectacle musicals may cost upwards of $50 million to open!).

When the show opens, the self-directed IRA gets back its initial investment from net operating profits (paid a pro-rata share of the profit until 100% of the initial investment is recouped). Revenue from merchandise, tours and other licensed productions, and other factors may contribute to the profit distributed to investors.

Of course, the hope is that the show has a long, successful run that will yield passive income for the account for many years, with net profits usually split 50/50 between the investors and the producers in perpetuity.

Investing in film production

Self-directed IRAs can become part of a film’s financing at any stage, from development to distribution. Financing is needed to secure the intellectual property and script development, put together production and creative teams, acquire film equipment and build or rent sets, and post-production (such as film editing and laying in special effects). The IRA can also be an angel investor in a film production company seeking funds for expansion.

Other types of film-related investments include:

• Film distribution companies – this provides short-term capital for distributors to acquire films before licensing them to networks and streaming services, and finances a film’s release and marketing.
• Funds that invest in production companies (film, theater) – such as partnerships or LLCs that finance productions, often structured as private placements
• Film markets and festivals
• Independent cinemas, community theaters, studio and other “maker” spaces

Investor beware: While the potential for significant returns is attractive, there is always the risk of the finished product being a box office flop, with the potential for loss of much of or the entire investment.

Remember that, as with any self-directed investment, the account owner and disqualified individuals cannot personally gain from the alternative asset, such as being a performer in or director of a production. Self-dealing and other prohibited transactions endanger the IRA’s tax-advantaged status.

Also be aware that the income the investment generates might be subject to unrelated business income tax (UBIT) if it is considered active business income (often triggered by real estate activities that are not passive in nature). We recommend you consult a trusted tax adviser before making an investment that could result in UBIT to be adequately prepared to cover that tax.

As always, if you have questions about the many options and benefits available by including alternative assets within a self-directed IRA, you can contact our helpful team at NewAccounts@NextGenerationTrust.com or 888.857.8058 during regular business hours.

Retirement Plan Contribution Limits for 2026

The Internal Revenue Service has announced the updated 2026 limits on IRAs and qualified (employer-sponsored) retirement plans. At a glance:

• Annual contributions to Traditional and Roth IRAs will go up by $500 for a total of $7,500. For individuals 50 and older, the catch-up contribution limit for IRAs will be an additional $1,100 (up $100 from 2025).
• The contribution limit for 401(k) plans will increase by $1,000 to $24,500. This new amount will also apply to 403(b) plans, most 457 plans, and the federal government’s Thrift Savings Plan. For employees aged 50 and up who participate in these plans, the catch-up contribution will increase by $500 to $8,000 next calendar year.

Higher catch-ups for employees in “pre-retirement” years

A provision in SECURE 2.0 gives workers who are 60, 61, 62, and 63 years old, and who participate in a qualified retirement plan, a catch-up contribution bonus. However, in 2026, that limit will remain the same at $11,250. After age 63, the “regular” catch-up contribution limit applies for participants of employer-sponsored plans.

If you participate in a workplace retirement plan, we recommend you check with your plan sponsor for details and how these updates will affect you.

Deductibility and eligibility for IRA account owners

Depending on one’s income range, an individual may be able to deduct the contribution amounts made to a Traditional IRA (not a Roth IRA) based on your modified gross adjusted income; check with your financial advisor or tax advisor to see if you can deduct all or a portion of your annual contributions.

NOTE: If you have a health savings account, you can deduct annual contributions (which grow tax-free and are withdrawn tax-free).

There are also income ranges that determine one’s eligibility to contribute to a Roth IRA or SIMPLE IRA and to claim the Saver’s Credit. These will all increase in 2026.

• ROTH IRA: The new income phase-out range will be between $153,000 and $168,000 (singles and heads of household), representing a $3,000 increase from 2025. That income range will be between $242,000 and $252,000 for married couples filing jointly. These figures are $6,000 more than the 2025 amounts.
  • A married individual filing a separate return is not subject to an annual cost-of-living adjustment; that remains between $0 and $10,000 for taxpayers who contribute to a Roth IRA.
• SIMPLE IRA: In general, individuals will be able to contribute $500 more to a SIMPLE IRA next year, a maximum of $17,000.
  • For employees aged 50 and up, the catch-up contribution for most SIMPLE plans will increase to $4,000. As with Traditional and Roth IRAs, there is a separate catch-up contribution limit that was enabled in the SECURE Act 2.0 for those aged 60-63; that amount is $5,250 (no change).
  • For certain applicable SIMPLE retirement accounts (also based on a change in SECURE Act 2.0), some individuals will be able to contribute $18,100 and the catch-up limit for employees aged 50+ is $3,850 (no change from 2025).
• SAVER’S CREDIT: This is a plan for low-income and moderate-income workers. Here are the income limits to qualify to contribute:
  • $80,500 for married couples filing jointly (up $500 from the 2025 limit of $80,000)
  • For heads of household, it will increase to $60,375 (up $1,125 from 2025)
  • For singles and marrieds filing separately it will rise to $40,250 (up $750 from the 2025 income limit of $39,500)

Covered by a plan at work? Or your spouse?

If you or your spouse is covered by a retirement plan at work (even if you also have an IRA), the deduction may be reduced or phased out until it is eliminated. This depends on your filing status and income. Your trusted advisor will be able to guide you on this and provide you with the relevant numbers regarding phase out.

Have questions about self-directed IRAs?

At Next Generation Trust Company, we administer all types of self-directed IRAs—Traditional, Roth, SIMPLE, and SEP, as well as HSAs (health savings accounts), and Coverdell education savings accounts (CESAs). We also administer solo 401(k) plans for business owners. Our team is available to answer your questions about the many types of alternative assets these plans allow to diversify your portfolio and help you boost your retirement (or other) savings. Contact us at NewAccounts@NextGenerationTrust.com or 888.857.8058, or sign up for our newsletter to stay in the loop about our informative webinars and industry updates.

RMDs: Taking In-Kind Distributions Of Alternative Assets From A Self-Directed IRA

Investors with self-directed retirement plans can include many types of alternative assets within their plans. These include real estate, precious metals, private equity funding, promissory notes, commodities, royalties and many more. In fact, the only investments the IRS prohibits in these plans are insurance and collectibles.

These alternative assets are typically long-term and relatively illiquid compared to the investment vehicles available through banks and brokerage houses, such as stocks, ETFs and mutual funds. Another difference is that when it comes time for account owners to take required minimum distributions (RMDs) using illiquid alternative assets, they will execute an in-kind distribution, so the process is different than liquidating stocks or pulling cash from a retirement account.

Why Everyone Must Eventually Take RMDs

All investors with retirement plans—both traditional and self-directed—must take RMDs each year by December 31 from pre-tax accounts. The SECURE Act 2.0 increased the age at which these distributions must begin from 72 to 73 years old for people born between 1951 and 1959. People born in 1960 and later must begin taking their RMDs at age 75. The first RMD has a grace period until April 1 of the following year. Note that you must take RMDs regardless of work/retirement status; it’s tied strictly to your age.

Note: The pre-tax provision means that this requirement does not apply to owners of Roth IRAs, but it does apply to beneficiaries of inherited Roth IRAs. There are also exceptions to the starting age for these distributions from defined contribution plans, so if you have a 401(k) or 403(b) plan, for instance, you may want to consult your plan administrator about that.

The RMD amount differs from individual to individual based on the account’s fair market value at the end of the prior calendar year and life expectancy. RMDs are calculated using all IRA assets in aggregate, while 401(k) plans calculate RMDs for each individual plan. The IRS provides calculation worksheets, which you can find here.

Failure to take one’s full RMD carries a hefty IRS penalty tax of 25% on the short amount, so make no mistake—these distributions are definitely required!

Taking In-Kind Distributions For RMDs

Remember that with a self-directed IRA, the retirement account owns the asset, not the individual taxpayer, and the plan custodian holds the asset in the name of the account. Also, regardless of what types of investments are in the account, the owner must take RMDs annually.

In accounts with illiquid assets as opposed to cash (real estate, for example), capital is tied up in those investments, and the taxpayer may not have adequate cash available to meet the RMD obligation. But don’t worry: The taxpayer may take an in-kind (non-cash) distribution that represents all or part of the shares of an asset to meet the RMD obligation.

The process is quite easy: The asset held by the custodian is re-registered (retitled) into the account holder’s name, essentially transferring ownership of the asset to the account holder, and it is then distributed. Before taking an in-kind distribution, the self-directed investor must provide a proper valuation of the asset by a professional appraiser, as it is a taxable event.

The plan custodian reports the transaction on IRS Form 1099-R. Regular income tax is due when the asset is distributed from a Traditional IRA. However, as noted above, there is no income tax triggered when the asset is distributed from a Roth IRA because the tax was already paid when the contribution was made.

Note: Every year, self-directed IRA owners must provide the fair market value for all alternative assets held in their accounts. Therefore, it’s important to leave ample time for third-party asset valuation (especially pertinent to real estate holdings) and the transfer before the RMD deadline. This valuation is reported on Form 5498.

What To Do When Capital Is Short

Some account owners find their self-directed IRA lacks sufficient cash to take the RMD. There are several ways in which to raise the necessary cash:

• In retirement accounts that hold real estate investments, the owner can sell or refinance the assets. This tactic can work with other alternative assets, such as precious metals and private funds, as the funds can be partially liquidated to account for an RMD.

• Any income received from an asset in the retirement account can be held to satisfy the RMD.

• Other retirement accounts with more liquid investments can also be used to satisfy RMD requirements. As long as the RMD is calculated over all IRA accounts that require it, the actual distribution can come from any of those accounts.

‍As with all aspects of retirement planning, I always recommend that clients discuss this matter with their trusted advisor and prepare for any changes the distributions may make to their overall financial picture.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Making Livestock Investments with a Self-Directed IRA

If you have cowboy dreams, love the idea of being part of the open range, or want to have an actual horse in the race, you can invest in all types of livestock with a self-directed IRA. Including these animals as part of a self-directed retirement portfolio offers investors interesting ways to diversify their holdings by adding a tangible asset that is not directly correlated with the stock market.

Types of livestock for investment

Livestock is an agricultural commodity comprising domestic animals that are raised for food, labor, materials, and more. They are mammals and include cattle, sheep, goats, pigs, horses, donkeys and mules (a cross between a horse and donkey), oxen, buffalo, and alpacas. Poultry is livestock adjacent but generally not considered to be in that category.

Using a self-directed IRA to invest in livestock

Owners of self-directed IRAs can invest in livestock and earn revenues by:

• investing in a ranch or cattle farm
• investing in a fund that trades cattle futures and options
• purchasing livestock at auction and then selling the animals at a profit
• leasing livestock to ranchers
• breeding (animal husbandry)
• wool, milk, meat, and leather production; by-products
• racing and riding (racehorses or stable horses for equestrian enterprises)
• ecosystem management (land and soil maintenance by grazing, manure production for fertilizer)

Related livestock investments are purchasing pastureland and leasing it to ranchers to use for their animals to graze; or investing in a feed company.

Remember that the SDIRA owns the asset and all income returns to the IRA and expenses are paid by the account. Beware of self-dealing activities, such as the account owner personally benefitting from the investment (or animal products), performing work related to the asset, or keeping the animals on land the investor owns. For example, if your IRA purchases a herd of cattle, the account must also pay for a non-disqualified third party (such as a rancher) to manage the herd’s day-to-day needs.

Livestock investments and unrelated business income tax (UBIT)

Depending on how the investment is set up (LLC, corporation, partnership), there may be UBIT, which applies to certain types of income generated from a business that is considered unrelated to the asset in question. The degree of active trade or involvement will also determine if it qualifies for UBIT (passive vs. active investment). We always recommend our clients consult a trusted, qualified tax professional or advisor familiar with the asset class and UBIT rules. IRS Publication 598 provides a lot of information about UBIT.

If you have any questions about self-direction as a retirement wealth-building strategy, the Next Generation team is here to help, at NewAccounts@NextGenerationTrust.com or 888.857.8058