Can I Use My IRA to Invest in a Startup?

As the popularity of entrepreneurial reality shows like Shark Tank grows, many wonder whether their IRA can be used as an investment vehicle for startups. The answer is yes; however, the process may require additional steps than simply borrowing against it.

Investment through a self-directed individual retirement account (SDIRA) requires several tax considerations that must be carefully taken into account.


As part of your startup investment income, investment income from investments may be taxed as Unrelated Business Taxable Income (UBTI). UBTI taxes usually range between 37%-39% – this shouldn’t be a dealbreaker but should be taken into consideration; startup operations often operate in the red early on so losses may offset future tax obligations for UBTI purposes.

C corporation startups pay corporate taxes before passing along dividends to investors; this differs from partnerships or LLCs which pass along income without incurring corporate taxes.

The IRS prohibits IRA funds from going toward entities controlled by you or your close relatives, with one exception: Roth IRAs which only become taxable when distributed after age 59 1/2. Strategic tax planning can help optimize your situation and minimize tax liabilities by timing investments and exits properly, taking advantage of tax-deferred investments, offsetting capital gains with capital losses or shifting your tax bracket through strategically timed distributions at age 59 1/2.


When using an IRA to invest in startups, it’s essential that you fully comprehend all applicable fees. These could include set-up and maintenance costs, annual account fees and broker transaction fees for each transaction; additionally, self-directed IRA custodians typically assess an assessment fee on each asset purchased as well as income that passes through to investors.

Investing in startups typically isn’t recommended if your primary motivation is passive income generation, but using your retirement funds for long-term investment may make sense in supporting an innovative new company’s development. In such an instance, UBTI taxation might just be worth paying in order to support its growth.

Investment through an IRA is most advantageous near the midpoint of the funding process, when an enterprise has attracted investor attention but doesn’t yet require venture capitalist involvement. Furthermore, this strategy works best for entrepreneurs using Rollover for Business Startup (ROBS) accounts to launch their company.


Investing in startup companies can be rewarding for retirement account holders, but must adhere to IRS regulations. Such investments often fall into the category of “alternative assets” and must be carefully managed so as not to trigger a prohibited transaction.

An investment process for startups entails finding an appropriate company and filling out all required paperwork with help from an attorney who specializes in startup law. Furthermore, it’s crucial that progress of the startup is regularly assessed as it moves toward becoming profitable.

Rollovers for Business Startups (ROBS) offer investors one way of financing a startup business without incurring tax liabilities, using funds from an IRA or employer-sponsored retirement plan to invest directly without incurring taxable transactions. Other funding methods may include soliciting friends and family investments or borrowing through lender programs like those administered by the Small Business Administration loan program.


Investment of startups using an IRA is an effective way to diversify your retirement account, but it is vital that you understand both the process and risks before doing so.

At first, you need to open a Self-Directed IRA through Madison Trust’s specialized custodial services and work closely with one of their CISP-trained specialists for step-by-step assistance.

Once your IRA has been established, you can start investing in private businesses or startups with promising profit potential. Unlike investing in publicly traded stocks, investing in privately held companies allows for direct income collection without first paying corporate taxes on it.

Startups require significant funding in order to thrive, which is why investors are turning more frequently to their IRAs as a source of funding for business startups. An IRA investment provides entrepreneurs with an excellent funding solution without restrictions such as repayment requirements or prohibited transactions imposed by traditional loans from retirement plans.

Raymond Banks Administrator
Raymond Banks is a published author in the commodity world. He has written extensively about gold and silver investments, and his work has been featured in some of the most respected financial journals in the industry. Raymond\\\'s expertise in the commodities market is highly sought-after, and he regularly delivers presentations on behalf of various investment firms. He is also a regular guest on financial news programmes, where he offers his expert insights into the latest commodity trends.

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