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Tilden Moschetti, Esq is a private placement memorandum attorney and a syndication lawyer. He has helped syndicators put together Regulation D offerings for their real estate syndications, business capital raises, and funding private equity firms.
Tilden Moschetti: A great
opportunity for syndicators and
fund sponsors is through self
directed individual retirement
accounts. In this video, we're
going to go through what those
are, and why it's a great
opportunity. My name is Tilden
Moschetti. I'm a syndication
attorney with the Moschetti
syndication Law Group, we
specialize in Regulation D Rule
506b and 506c offerings.
So what is a self directed
individual retirement account, a
self directed individual
retirement account or self
directed IRA is an account much
like a traditional IRA. It is
same with a an institution that
holds the money and makes
decisions and basically protects
the investor from touching their
money during that period when it
needs to be in the account so
that they have a tax consequence
that's very negative to them. So
they protect that it's in that
shield, I think everybody really
understands that piece of it.
But a self directed goes one
step further, instead of the
administrator making the
decisions and acting on trades
to buy into a public security or
into something that is well
known and most of the time still
a public security, a self
directed IRA, lets the investor
make the decision on where
exactly that money goes. And
that could be into something
like a private offering, that is
being done under Regulation D
Rule 506b and Rule 506c, so they
can choose to invest in there.
So the setup looks like this,
you as are the sponsor, and your
investor is also a beneficiary
of the self directed IRA. Now,
the self directed IRA is run by
a administrator and that
administrators job is to make
sure that the rules of the IRS
and the states are complied with
to make sure that there's no
consequences that happened to
their beneficiary in the the the
money hitting their hands or
something not proper happening
within the IRA rules that will
cause a tax consequence. So when
that is set up properly, what
happens when you put this
offering in front of your
investor, the investor goes and
opens up a self directed IRA
account with the administrator.
And it's helpful to kind of
direct them to a bunch of
different places. So typically,
I will refer to for three or
four different self directed IRA
companies, let them know that
they exist, have them choose,
you know what, and talk to them
and make a decision on if one of
these would be a good fit for
them. When they do, they've then
entered into an agreement, where
they become that beneficiary of
that account, and the
administrator takes control,
they then direct the
administrator to invest in your
account. At that point, then you
provide the private placement
memorandum the operating
agreement, not only to the
investor, but also to the
administrator, the administrator
reads those documents to make
sure that all of the that it is
set up in such a way that it
protects the investor slash
beneficiary from any of those
tax consequences, which would be
disaster. Assuming that
everything is fine, they will
then sign the subscription
agreement. Typically, it is that
administrator that signs the
subscription agreement, but a
lot of times they will also ask
the investor slash beneficiary
to sign it as well. And that
gives them that gives the
administrator the authority to
then send the money and buy the
security from you. So that's all
done. They've now invested in
the the in there and in your
accounts, you have the investor
listed not as investor name, but
you have that investor listed as
as self directed IRA name for
the benefit of investor name.
When it comes time to do taxes,
you will be issuing the k one to
the self directed IRA with a
copy to the investor. So that
way the taxes flow, that
obligation flows to the
administrator to make sure it's
dealt with in a way that's
proper and conforms to the rules
of having an IRA. Then when
you're making distributions, you
need to make sure along with the
the admin an illustrator that
all the money that's sent goes
to the administrator for the
benefit of your investor, and
never to the investor
themselves. If the investor has
control of the money, that's
when everything goes kaboom.
That's when there's major major
consequences, including imputed
income, or penalties of possibly
even their entire Ira world. We
want to make sure that the money
doesn't go into the hands there,
that it stays within the
administration of that self
directed IRA. So that's the the
way that the that it's all set
up. Now, the reason I say that
it's a great opportunity for
syndicators and for fund
sponsors, is because now not
only do you have a lot more
capital to work with all this
capital that's available in
these individual retirement
accounts. But it's also a great
opportunity to talk to investors
about the fact that these even
exist, and that they may have an
opportunity to invest in your
offering, which would, which
may, and hopefully will give
much better returns than
whatever they would choose in a
traditional IRA. So I hope that
helps open your eyes to the self
directed IRA world. It is a
powerful tool that is readily
available for syndicators to use
and to help their investors make
good decisions and possibly make
more money and a much more tax
sheltered way. So if I can help
you as a syndication attorney
with your offering, don't
hesitate to give us a call and
we can talk through your
offering under Regulation D Rule
506b and 506c.