Business Ira

Written by Johnny Kitchens
Bookmark and Share

A surprising number of investors are unaware of the extent to which their IRAs can act to invest in businesses without their direct oversight. As long as the IRA owner signs the appropriate documents, the IRA custodian can make all of the investment decisions. This is not an arrangement that many IRA owners desire, but it is possible. In fact, however, many IRA plans work in a way similar to this. IRA owners are typically given only a narrow menu of investment options from which they can choose.

The options given to investors by most traditional IRA providers consists of a steady diet of stocks, bonds, annuities, and/or mutual funds. This is a major reason investors are not more aware of the investment powers their IRAs have been granted. An IRA can own wholly, or in part, businesses both foreign and domestic. The main restriction regarding IRA business ownership is that one's IRA cannot participate in a business in which one, or a member of one's family, owns a controlling interest.

This ability to own businesses even allows for some transactions that are not explicitly allowed, namely foreign real estate. The rules governing IRAs say that an IRA cannot own real estate except in the United States and its protectorates. However, the rules do not prohibit an IRA from owning a company that owns real estate in another country. As long as the IRA has ties only to the company and all other rules and protocols are met, the investment is sound.

Deciding on a Business

Since your IRA is your nest egg, or at least the most tax-advantaged part of your nest egg, you should consider taking a strategy that avoids unnecessarily high risk. Before investing your IRA in a business, you should look at that businesses track record of profitability, the health and strength of the industry as a whole, and what the future may hold for both. In general, you should invest in what you know or at least what you understand after it has been explained to you.


Bookmark and Share