Including Joint Ventures in a Self-Directed IRA

Published on February 13, 2020

Did you know that you can use funds in a self-directed IRA to invest in a joint venture? These investments allow you, as a self-directed investor, to enter into a business arrangement with one or more individuals, and create a way for different investors to pool resources for a particular project.

Unlike partnerships, which are between individuals and are long-term arrangements between parties to operate a business, joint ventures are typically for a limited time or for a specific investment. Joint ventures (JVs) are often done in real estate but can be for other investments that the parties intend to sell at a profit within a specified time frame.

According to Investopedia, “Joint ventures, although they are a partnership in the colloquial sense of the word, can take on any legal structure. Corporations, partnerships, limited liability companies, and other business entities can all be used to form a joint venture.”

JVs can be formed for many different types of business activities. Liability is mitigated since the venture is its own entity, separate from the participants’ other business interests. When the JV is a self-directed investment, the IRA, as one of the partners, shares responsibility for the profits, losses and expenses associated with the JV. It is possible for two or more self-directed IRAs to team up on a joint venture.

How joint ventures work with self-directed IRAs

Let’s say you have a self-directed retirement plan and wish to partner with another investor to purchase a piece of real estate. The self-directed IRA makes the investment along with another party or parties as a private placement. Terms of the arrangement are worked out between all involved, including:

• How much each party is investing
• Type of project (technology, real estate, foreign venture, etc.)
• Time period of the investment/JV
• Structure of the JV
• Control, management and, if relevant, staffing
• Ownership splits
• Dissolution

Gains on the investment flow back to the self-directed IRA, tax deferred or tax exempt, depending on the type of retirement plan.

Joint ventures carry with them tax and legal considerations. At Next Generation, we recommend that as part of their due diligence, investors consult with their trusted advisors before entering into a joint venture of any kind. It’s also important to educate yourself to avoid a prohibited transaction. As a self-directed retirement plan custodian and administrator, we review all documentation for compliance with IRS guidelines to identify disqualified persons or prohibited transactions.

If you’re considering using your self-directed retirement plan to invest in a joint venture, and have questions about how to get started, contact us via email at NewAccounts@NextGenerationTrust.com or call 888-857-8058. Alternatively, you can schedule a complimentary educational session with one of our representatives to discuss self-direction as a retirement wealth-building strategy.