Funding Your Startup through SDIRA: Know What are All About

Are you a startup owner and looking for investors to fund your entrepreneurial venture? Then, you can look at your Self Directed Individual Retirement Account (SDIRA) to raise money. It means you can finance your startup using your SDIRA so that you can protect its capital gains.

It will help if you first understand the difference between a traditional IRA and an SDIRA so that you can know the process better.

The Difference

The traditional IRAs involve investments with assets, like mutual funds, stocks, and bonds. And the investments are controlled by financial institutions that hold the retirement accounts. But an SDIRA broadens your investment choices to areas, such as real estate, precious metals, franchises, and even startups.

One important thing to keep in mind is that SDIRAs require you to avail of the services of an IRA custodian that will assess alternative investment assets and also provide the necessary record-keeping services. However, these IRA custodians do not offer you investment advice.

The Initial Starting Steps

Like any other process, there are pre-defined steps you need to take before you plunge into the funding process. After you decide to fund your startup through an SDIRA, you need to follow the following four initial steps:

First, set-up an SDIRA with the help of a reputed IRA custodian that is well-experienced with the rules and regulations of such accounts. 

Second, execute a rollover from your existing IRA — or your 401(k) or 403(b) account — to the self-directed IRA.

Third, set-up a Limited Liability Company (LLC), which will be managed by you--the SDIRA account holder. It will act as the legal entity for your business.

Fourth, after establishing the LLC, you can start purchasing the membership units in it with the help of the funds in the Self-Directed IRA.

Funding your startup through your SDIRA can be an excellent way for you to raise money. To know more, refer to the infographic in this post.


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Caitlyn Lowe is a freelance writer since 2011. Graduated from the University of Florida in Psychology Major. She loves to write about lifestyle, technology, finance, human psychology, human behavior, and relationship.

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