Investing in Patents with a Self-Directed IRA

Published on February 24, 2026

If you like to invest in intellectual property (IP), patent investing may be of interest to you. You can use the funds in a self-directed IRA to build your IP portfolio holdings by purchasing and/or licensing industrial or tech patents.

Patent investing puts self-directed investors in the innovation space without having to invent or design something of their own. Depending on the patent asset, which can be in many industrial, pharmaceutical, or technology sectors, this type of IP investment can be lucrative, with strong returns.

Patent investing basics

These IP investments give account owners the rights to an idea, product, or invention, and the self-directed IRA (SDIRA) generates revenue from patent licensing or patent sales. In the U.S., many patents are utility patents; these cover the functional aspects of an invention. Utility patents include processes, machines and appliances, compositions of matter (chemical compounds), and articles of manufacture (items with no moving parts, such as tools and furniture).

As with most alternative assets, industrial and tech patents are long-term investments compared to stocks. And as with any self-directed investment, they cannot be bought from or used by disqualified persons and the patent can only be used by third parties through licensing (no self-dealing allowed).

There are several ways in which to participate in patent investing:

• Patent acquisition – Investors can acquire existing patent rights, purchasing the patent asset outright. This provides exclusive rights to the patented invention or process of another party and sale of the asset generates revenue for the SDIRA. Although patent acquisition often involves transferring full ownership of the patent assets, it may also involve licensing the patent or a hybrid arrangement. Acquisition can be for a single patent, a group of related patents, or a complete portfolio containing many IP assets.
• Patent licensing – In patent licensing, the usage rights are granted to the investor, but asset ownership remains with the original holder. Licensing generates a steady stream of passive income for the SDIRA, as the retirement account can then make the patent available to other parties for certain uses for royalty income.

• Investing in patent funds or marketplaces – Platforms that enable individuals to invest in patent funds or that aggregate and manage patent portfolios.
• Patent litigation financing – The SDIRA can fund patent litigation cases in exchange for a share of settlements or awards. You can read more about litigation financing in this previous post.

The patent investment domain has many legal, financial, and strategic aspects to it, from the assignment of the patent to acquisition, a legal process requiring proper documentation and registration. In addition, the form of patent acquisition will affect the parties’ rights and obligations; therefore, as with patent licensing, this intellectual property investment requires thorough knowledge of this type of transaction. The investor’s thorough due diligence and the expertise of legal counsel in patent law are crucial aspects of this investment.

Opportunities for patent investing

In this age of booming tech, there are many high-value investment opportunities for patents in blockchain, manufacturing, AI and machine learning, green/renewable energy, smart tech, 5G, software, biotechnology, automation, and data analytics. Another area is industrial design, which protects the aesthetic aspects of a product.

When researching patents, account owners should assess the following factors, which all tie together:

1 – The asset’s market potential. Will there be strong commercial applications and market demand for the invention or process?

2 – Marketplace competition. Are there other patents that could present infringement problems? Is it a crowded field already? How does this patent differ?

3 – Patent strength. This is a legal consideration regarding the strength of the patent’s legal standing. Does it stand up to court challenges and claims of infringement? Is the patent enforceable?

4 – Licensing feasibility. How strong will interest be among companies in licensing this technology?

5 – Regulatory and legal matters – Make sure the patent complies with the law and check for immediate/current legal challenges.

Investing in patents via a SDIRA

Account owners can use available funds in their SDIRA to make direct investments in patents. Some account owners form an LLC (wholly owned by the retirement account), which can help streamline certain asset-related transactions, such as paying patent fees and signing licensing agreements. We strongly recommend you discuss this with your trusted tax advisor or ERISA attorney to determine the best plan of action for your needs, as this pass-through entity may be considered a business in the eyes of the IRS and trigger unrelated business income tax on the revenue it generates.

As with all self-directed investments, the patent-related expenses (maintenance, legal fees, licensing administration) are paid directly by SDIRA or the SDIRA-owned LLC and all income (from licensing revenue or sale of the asset) must flow directly into the SDIRA account or IRA-owned LLC. Annual valuation of the asset is required for tax reporting.

If you need more information about self-direction as a retirement wealth-building strategy, you can contact our helpful team at NewAccounts@NextGenerationTrust.com or 888.857-8058. If you’re ready to open a new SDIRA and include alternative assets within your retirement account, our starter kits, which you’ll find here, provide step-by-step instructions.