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.