Adam Bergman

Founder, Tax Lawyer, Author

When most private businesses, real estate sponsors, and fund managers think about raising money, they focus on wealthy individuals, family offices, private equity firms, and institutional investors. Many overlook an enormous source of investment capital: Individual Retirement Accounts. As a tax attorney who has spent almost 16 years helping Americans use retirement funds to invest in alternative assets, I believe the ability to raise capital using an IRA is one of the most underutilized opportunities available to private investment sponsors. With the right structure and the right Self-Directed IRA partner, it can be relatively straightforward, but there are tax, legal, and structuring issues every sponsor needs to understand first.

The $19 Trillion IRA Marketplace Is an Enormous Opportunity

According to the Investment Company Institute, Americans held approximately $19.9 trillion in IRAs as of June 30, 2026, which exceeds the size of many of the largest investment markets in the world. The market keeps growing, too. Every year, Americans retire, change jobs, or leave employers and roll hundreds of billions of dollars from 401(k) plans into IRAs, and industry estimates suggest nearly $1 trillion could move into IRAs through rollovers in 2026 alone. Once those funds are in an IRA, investors generally have far more flexibility in how they’re invested.

Consider a private real estate fund looking to raise $50 million. Rather than relying exclusively on institutional investors or wealthy individuals investing personal savings, the sponsor could also target qualified investors with substantial retirement savings. An investor who may not have $250,000 in available personal cash could easily have $500,000 or more sitting in an IRA, and that capital could potentially go into the fund without the investor withdrawing the money, paying ordinary income taxes, or incurring an early distribution penalty. IRA capital isn’t new money investors need to earn or save. It’s existing capital that can be redirected into private investments, which opens the door to a much larger universe of potential investors.

Why IRAs Are Ideally Suited for Illiquid Alternative Investments

Most retirement investors can’t access their IRA funds before age 59½ without potentially triggering a 10% early distribution penalty on top of ordinary income taxes. As a result, retirement money is generally meant to stay invested for years, sometimes decades, which creates a natural fit with alternative investments that require longer holding periods.

A private equity fund may have a seven-to-ten-year horizon. A real estate development project may take five years before investors get their capital back, and a venture capital investment may take a decade or longer to generate meaningful returns. These investments may not suit someone who needs immediate access to their money, but they can make considerable sense inside an IRA, particularly for investors many years from retirement. IRA investors still need to plan for required minimum distributions, generally beginning at age 73, as well as unexpected financial needs and diversification. Nevertheless, I believe retirement accounts are among the most natural vehicles for long-term alternative assets like real estate, private business stock, and private equity, and IRA investors may be more comfortable with longer lockup periods when those periods fit their retirement goals.

What Can an IRA Actually Invest In?

One of the biggest misconceptions about IRAs is that they’re limited to stocks, bonds, mutual funds, and ETFs. That’s simply not true. Under the Internal Revenue Code, an IRA can generally invest in almost any asset, including private equity, venture capital, hedge funds, private credit, real estate, investment partnerships, and private businesses. The rules contain no general prohibition against investing in privately held companies or investment funds. You can read more about the assets a Self-Directed IRA can hold and the gray areas to watch.

The primary restrictions involve collectibles, life insurance contracts, and transactions involving disqualified persons. Under Internal Revenue Code Section 4975, an IRA generally can’t engage in prohibited transactions with the IRA owner or certain related parties. For example, an IRA owner generally can’t use retirement funds to invest in a business they personally control or in a transaction that improperly benefits themselves or certain family members.

These rules typically present far fewer concerns when an IRA makes a passive investment in an unrelated third-party fund. If an IRA investor wants to invest $100,000 as a limited partner in an unrelated private equity fund, and the investment is properly structured, the IRA can generally make that investment. The investor doesn’t withdraw the $100,000. The IRA itself becomes the limited partner and owns the investment. For sponsors, accepting IRA investors is often much simpler than they might initially believe.

Why Schwab, Fidelity, and Traditional Brokerages Restrict IRA Alternative Investments

If IRAs can legally invest in private funds and businesses, why do most Americans believe their retirement savings must stay in traditional financial products? Most large brokerage firms, including Schwab and Fidelity, generally don’t permit ordinary retail IRA accounts to invest directly in privately held businesses, real estate, or many private funds. That’s a business and operational decision, not an IRS rule. Traditional brokerages are built to hold and trade publicly traded securities, while private investments require different administrative procedures, documentation, valuations, and tax reporting. A Self-Directed IRA custodian, on the other hand, is specifically structured to let retirement investors hold alternative assets.

This distinction is extremely important for sponsors. An investor may have $1 million in an IRA at a traditional brokerage and mistakenly believe those funds can’t go into a private real estate fund. In reality, the investor may be able to transfer some or all of those funds to a Self-Directed IRA custodian and then make the investment, and a properly completed IRA-to-IRA transfer generally doesn’t trigger income taxes or an early distribution penalty. Educating prospective investors about Self-Directed IRAs can unlock capital they may not even realize is available to them.

UBIT: The Most Important Tax Issue When You Raise Capital Using an IRA

Although IRAs generally offer tax-deferred growth, or potentially tax-free growth in a Roth IRA, not every type of investment income escapes current taxation. One of the most important issues for sponsors accepting IRA capital is Unrelated Business Income Tax, or UBIT.

UBIT can apply when an IRA earns income from an active trade or business conducted through a pass-through entity, such as an LLC or partnership. Assume an IRA invests $200,000 into a private fund structured as an LLC taxed as a partnership. If the fund operates an active business or invests in operating businesses through pass-through entities, a portion of the income allocated to the IRA may be subject to UBIT. UBIT can also arise when an IRA invests in certain debt-financed investments, including leveraged real estate, under the unrelated debt-financed income rules, which is especially important for real estate sponsors and private equity funds that use leverage.

For 2026, the federal trust income tax brackets reach the top 37% rate at relatively low levels of taxable income, roughly $16,000. That means an IRA could face a significant federal tax liability on income generated by an investment even though the money stays inside the retirement account. If a fund allocates $100,000 of net unrelated business taxable income to an IRA, the IRA could owe a substantial amount of tax. The tax is generally paid by the IRA itself, not personally by the IRA owner, and an IRA with sufficient unrelated business taxable income may need to file IRS Form 990-T.

Not all private investment income triggers UBIT. Interest, dividends, many capital gains, and other passive returns are generally excluded, subject to exceptions such as debt-financed income. That’s why the fund’s underlying strategy and legal structure matter so much. A fund investing in C corporation stock may produce a very different IRA tax result from one investing directly in operating LLCs, and identifying potential UBIT exposure before investors subscribe can make the investment much more attractive.

How a Blocker Corporation Can Help Minimize UBIT

One of the most important things I’ve learned as a tax attorney is that the legal structure of an alternative investment can be just as important as the investment itself. There are legitimate ways to reduce or potentially eliminate UBIT for IRA investors, and I’ve written more about smart ways to avoid UBTI in a Self-Directed IRA.

Domestic C Corporation Blockers

Assume a private equity fund invests in operating businesses through LLCs that generate income potentially subject to UBIT. Instead of having the IRA invest directly through the pass-through structure, a domestic C corporation can be placed between the IRA and the underlying investment. The corporation pays federal corporate income tax at a flat 21% rate, and dividends later distributed to the IRA are generally excluded from UBIT. This can reduce the federal tax burden compared with having income taxed directly to the IRA at trust rates reaching 37%. However, a corporate blocker may introduce a second layer of tax or other costs, so the structure must be analyzed carefully.

Offshore Corporate Blockers

For certain investments, an offshore corporation can prevent operating business income or debt-financed income from flowing directly into an IRA as UBIT. If properly structured, the offshore corporation may receive income that isn’t subject to U.S. federal income tax, and dividends paid to the IRA may also be excluded from UBIT. In those circumstances, it may be possible to eliminate UBIT and significantly reduce the overall U.S. tax burden. Offshore blockers aren’t automatically tax-free, though. Effectively connected income, withholding taxes, anti-deferral rules, and other provisions must be considered. Real estate presents additional challenges under the Foreign Investment in Real Property Tax Act (FIRPTA), which can subject foreign corporations to U.S. tax on gains from U.S. real property interests and makes offshore blockers less effective for many U.S. real estate investments. For a closer look, see how to invest in a credit fund with an IRA using a foreign blocker.

A properly designed fund structure can potentially save IRA investors substantial amounts in taxes. For sponsors, that’s more than a compliance issue. It can become a meaningful competitive advantage when raising retirement capital.

Not All Self-Directed IRA Companies Are the Same

One mistake I see fund sponsors make is assuming every Self-Directed IRA company offers the same level of service and expertise. Some custodians focus primarily on holding assets, processing paperwork, and basic administration. Those functions are important, but they don’t necessarily address the more complicated tax and structuring issues that arise when IRAs invest in private funds, operating businesses, or leveraged real estate.

At IRA Financial, we take a different approach. Helping someone invest in an alternative asset involves more than opening an IRA and processing an investment. It requires understanding how the investment is structured, whether UBIT may apply, whether prohibited transaction concerns exist, and whether there are legitimate opportunities to improve the investment’s tax efficiency. For example, a private equity sponsor raising $100 million through a partnership structure that could generate UBIT may benefit from working with an experienced Self-Directed IRA provider and qualified tax counsel before accepting IRA capital, so it can evaluate alternatives like domestic or offshore blockers that could improve after-tax results for retirement investors. We’ve helped thousands of investors access alternative investments using retirement funds, and I believe our combination of Self-Directed IRA experience, tax knowledge, and alternative investment expertise puts us in a unique position to help sponsors and investors navigate this market.

How Fund Sponsors Can Start Raising Capital From IRA Investors

For a private business or investment sponsor interested in the IRA marketplace, the process doesn’t have to be complicated.

Final Thoughts

The U.S. retirement market represents an extraordinary opportunity for private businesses, real estate sponsors, and fund managers. Much of the nearly $20 trillion held in IRAs remains invested in traditional financial products, even though the tax rules generally permit IRAs to own a wide range of alternative investments. Retirement investors can be a natural fit for long-term investments, especially private equity, venture capital, private credit, and real estate. But tax efficiency matters, and an investment that generates unnecessary UBIT may be considerably less attractive than one designed with IRA investors in mind.

At IRA Financial, our mission is to help Americans unlock their retirement savings and invest in alternative assets as easily and cost-effectively as possible, while understanding the tax advantages and potential traps. For sponsors looking to raise capital, my message is simple: don’t overlook the IRA marketplace. Your next investor may already have the capital you need sitting inside a retirement account.

This content is for educational purposes only and does not constitute legal, tax, or investment advice. Consult a qualified professional before making any investment decisions.