Using Self-Directed IRAs to Invest Locally


One of the most common problems that people face when considering a local investment is figuring out where those extra funds are going to come from. It’s easy for life to soak up all your excess cash flow if it’s too easily accessible, so financially responsible people direct their excess income to accounts that are safe and will earn reasonable interest. Traditional IRAs and 401Ks are the two most common long term cash sinks, but these options allow you little to no control over your what you are investing in — options are limited to stocks, bonds, mutual funds, and CDs. For the conscious investor interested in responsible investments, this can present a moral dilemma, pitting responsible saving and responsible investing at odds.

The good news is that there is an option for your retirement portfolio that allows for both financial and social responsibility. It’s called a self-directed IRA (SDIRA). SDIRAs have been around about as long as standard IRAs and are growing quickly in popularity. Just like standard IRAs, SDIRAs offer tremendous tax benefits (tax-free profits, tax deductions, asset protection, and estate planning), but they also offer the freedom to make debt- or equity-based investments in local businesses that are more tangible and offer far greater potential for personal connection.

Keep reading below if you’re interested in the logistics of diversifying your retirement portfolio away from Wall Street and gaining more control over where your money spends the night.

Who can help me do this?
You will need your desired funds to be held by one of the dozens of designated SDIRA custodians. See the list here. Contact your IRA custodian and ask if they have an SDIRA option. If they don’t, find one that does from that list and contact them to discuss your plans for self-directed community investments.

How does the investment work?
All documents related to the investment will be titled in the name of the IRA, not to you personally, just as all interest/dividends will be paid directly back into the IRA account. Once your investment has been made, you don’t have to handle a thing.

What are the steps in the investment process?
1) Contact your SDIRA custodian and inform them that you’d like to make a community investment.
2) Provide them with legal name of the corporation you’d like to invest in and the desired investment amount.
3) Provide the custodian with the relevant Offering Memorandum and Subscription Agreement. The company you’re investing in will be able to provide you with all of these, and may even be able to communicate directly with the custodian.
4) The custodian will let you know what else they need from the company, if anything. Each custodian has their own specific list of required information.

Are self-directed IRAs for everyone?
SDIRAs are not for everyone. They are for people who want greater diversity in their portfolio, want to separate their financial future from the volatile swings of traditional markets, and want to use their investments to create wealth while also strengthening communities and creating meaningful connections.

So far Maker’s Common has received one SDIRA investment, and the process was a breeze. If you’d like to further discuss this option as a way to invest in Maker’s Common, feel free to email Oliver directly at oliver@makerscommon.net.