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Invest in startups with tax-deferred retirement funds

At Splash Oakland April 22-23, learn how you can tap your self-directed IRA into startups

Lessons learned from observer or expert by Bill Neville
April 8, 2015
Short URL: http://vator.tv/n/3d17

(Come mingle with hundreds of top venture capitalists representing $10B-plus in capital under management, including Khosla Ventures, Greylock and Javelin Venture Partners, and learn from founders/CEOs including Marco Zappacosta, Co-founder & CEO of Thumbtack and Adam Goldenberg, CEO of JustFab, Slava Rubin, Founder & CEO of Indiegogo, at Vator Splash Oakland on April 22nd and 23rd. Get your tickets here!)

On April 22, I'll be holding a Breakout Session at Splash Oakland (taking place over two days on April 22, April 23) in Oakland, to talk about how IRAs can be used to invest in startups. Getting a return for a startup investment can take a long time. So why not use the funds sitting in your retirement account?

A self-directed IRA gives you the freedom to invest in what you know. With a self-directed account, you are not limited to the traditional investment options offered by most banks and custodians – you choose in what to invest. 

For example, while most investors understand they can use their tax-deferred retirement account(s) to 
invest in publicly-traded stocks, many are unaware they can invest their IRA or 401(k) in private equity. 

For self-directed IRA owners, investing in private equity has the potential to bring higher returns than 
the stock market or CDs at an early stage and a chance to defer income tax on investment gains. When an 
investor uses their retirement funds to buy private stock, they will not have to pay capital gains taxes upon
selling them. The tax-deferred account reaps the benefits of more competitive returns in a tax-efficient environment.

These days, it is common for startups in need of funding to offer investment opportunities to self-
directed investors. Obtaining capital from a self-directed IRA owner can be simpler and faster than the 
loan process with institutional lenders. Traditional, Roth, SEP, and SIMPLE IRAs can be utilized for the 
investment. A self-directed IRA can invest in startups via:

· LLCs
· C corporations
· Private stock
· Partnerships
· Private placement memorandums
· And more

Example: Facebook Private Stock 

An example of the returns that can potentially be obtained by engaging in this strategy is exhibited by 
the increased value of stock for social media giant Facebook, Inc. CNBC reports that one investor was able to buy shares of the company's private stock for $3.50 in April 2008. Facebook’s stock then was evaluated and priced at $38 per share at its initial public offering (IPO) in May of 2012. The price movements of the company stock before its IPO were, until recently, only known by a small group of insiders.

An individual who purchased a share of Facebook's private stock for $3.50 and then later sold the 
security for $38 would have generated a return on investment of more than 1,000 percent. If the 
investor used a self-directed IRA to buy the stock, he could defer any payment of taxes on the sale.

To learn more on how you can become an IRA lender or borrower to invest in startups tax-free or tax-
deferred, join me on Day 1 of Splash Oakland on April 22. I'll be in Track 2 – Investing Insights - at 4:35 pm. Check out the Breakout Sessions agenda

For other segments and sessions at Splash, see related stories below.

(source: ourcrowd)


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