Non-Traditional Assets In A Traditional IRA

Our goal at Cornerstone Private Asset Trust Company, LLC is to provide an alternative to the large bank trust departments.  One of the unique solutions we can provide is to serve as custodian for your self-directed IRA.  

How is this different from any other self-directed IRA?  While the IRS allows you to hold investment real estate and closely held stock in your IRA, many trust companies do not because of the administrative hassles.  They may find the asset hard to value or they may find it difficult to collect fees.  Usually they feel they cannot make enough money to warrant the investment in these non-traditional assets.  However, Cornerstone will. 

Many business owners own real estate, or want to own real estate, but they may not have cash readily available to purchase it.  By using an IRA through Cornerstone, you will have more flexibility.  You can purchase land, commercial buildings, rental properties or real estate contracts.  With the flexibility, there are some important things to keep in mind.  

  • First, you cannot have any personal use of the property while it is in your IRA.  The investment in the property is just that – an investment.  For example, you could not purchase your residence in your IRA.  

  • Second, as your custodian, Cornerstone Private Asset Trust Company will need to purchase the asset for benefit of your IRA.  This means that you or a related party could not purchase the asset and then transfer it to your IRA.  

  • Third, any expenses need to be paid out of your retirement account.  As you know, there are various expenses that come with owning real estate such as property taxes, insurance, appraisals, improvements, repair, etc.  All related expenses must be paid by your IRA.  

  • Finally, just as any expenses are paid out of your IRA, any income must flow back into your IRA.

For example, you have an IRA with $1,000,000 in it and you want to purchase an interest in a limited partnership.  You must be a passive investor, not a material participant, in the partnership.  Cornerstone will complete the appropriate investment paperwork, sign as custodian and cut a check from your IRA for the purchase.  We will leave some cash set aside in your IRA to cover any applicable expenses.  Each year we will receive the K-1 on the investment and complete the appropriate accounting for your IRA.  Specifically, making sure any income, losses or expenses are tracked to your account.   

Another popular investment for individuals, particularly business owners, is stock in a closely held company.  This works in much the same fashion as real estate in your IRA.  For example, you may want to invest in a baby food company a friend is starting, but, again, you may not have the cash readily available.  As your custodian, Cornerstone Private Asset Trust Company can purchase the privately held stock and hold it in your IRA. 

By investing in these types of non-traditional assets in your IRA, you maintain the benefits of an IRA (or a Roth IRA if you qualify) while gaining flexibility in your investment options.  Cornerstone will allow you to do just that.  Please feel free to give us a call at 866-200-6528 or if you would like to further discuss the requirements and benefits of an IRA through Cornerstone Private Asset Trust Company, LLC.