Can You Invest Self-Directed IRA Money in Private Companies?

A Self-Directed IRA can give investors access to private company investments, offering opportunities beyond the traditional stock market while preserving the tax advantages of a retirement account.

Some of the most significant wealth creation stories begin long before a company ever reaches the public markets. Many well-known businesses spent years as private companies before becoming household names. While not every private business becomes the next Google or Amazon, the potential for growth is one reason many investors explore private company investments.

But how does investing in private companies through a Self-Directed IRA work, and what should investors know before getting started?

Investing in Private Companies Through a Self-Directed IRA

The short answer is yes: a Self-Directed IRA can invest in private company stock, membership interests in LLCs, private placements, and certain other privately held business interests.

Unlike traditional IRAs that often limit investors to stocks, bonds, mutual funds, and ETFs, a Self-Directed IRA opens the door to a broader range of IRS-permitted alternative assets. One of those asset classes is private equity.

When a Self-Directed IRA purchases an interest in a private company, the investment is owned by the IRA—not by the account holder personally. Any gains, losses, dividends, or distributions flow back into the retirement account and remain within its tax-advantaged structure.

However, private company investing comes with significant risks. Many private businesses fail, and investments can be highly illiquid. Unlike publicly traded stocks, there is often no active market where shares can be easily sold. That's why thorough due diligence is critical before investing retirement funds.

Why Investors Consider Private Company Investments

Private company investing appeals to some investors for several reasons.

Diversification Beyond Public Markets

One potential advantage is diversification. Private companies often operate independently of day-to-day stock market movements. While they are still affected by broader economic conditions, their performance may not always move in lockstep with public markets.

For investors seeking a more diversified retirement portfolio, private company investments can represent an alternative asset class alongside real estate, private lending, precious metals, and other Self-Directed IRA investments.

Potential for Long-Term Growth

Some investors are attracted to the possibility of participating in a company's growth before it becomes publicly traded. Early-stage and privately held businesses may offer significant upside potential if they succeed.

Of course, higher potential rewards generally come with higher risks. Many private companies never reach an initial public offering (IPO), and some may fail altogether. Investors should view private equity as a long-term investment and carefully evaluate each opportunity before committing retirement funds.

Investing in Areas You Understand

Many investors choose investments that align with their professional experience or personal expertise. For example, an investor with experience in technology, manufacturing, healthcare, or real estate development may feel more comfortable evaluating private business opportunities within those industries.

While familiarity should never replace proper due diligence, investing in areas you understand can help you make more informed decisions.

Important Rules and Considerations

Private company investments inside a Self-Directed IRA must comply with IRS regulations.

For example:

Because private investments often involve complex structures, many investors work with experienced professionals to ensure compliance.

What About Checkbook Control?

Some investors choose to establish an IRA-owned LLC, often referred to as a Checkbook IRA structure. In this arrangement, the Self-Directed IRA owns an LLC, and the LLC may make investments on behalf of the retirement account.

This structure can provide greater control over transaction execution, but it also comes with additional compliance responsibilities. Investors considering checkbook control should understand the rules thoroughly before moving forward.

Why Use a Self-Directed IRA for Private Equity Investing?

A Self-Directed IRA allows investors to access private company opportunities while maintaining the tax advantages associated with retirement accounts.

Whether you're interested in private businesses, real estate, private lending, precious metals, or other alternative assets, self-direction gives you the flexibility to build a retirement portfolio that reflects your own investment knowledge and goals.

At American IRA, we help investors understand the rules, opportunities, and responsibilities associated with Self-Directed IRAs. Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at www.AmericanIRA.com.