How to Invest in Private Companies with a Self-Directed IRA

Many of today’s most promising investment opportunities aren’t listed on the stock exchange—which is why more individuals are choosing to invest in private companies with a Self-Directed IRA.

Some of the world’s fastest-growing companies stay private for years before they ever consider going public. Early investors in companies like SpaceX, OpenAI, Stripe, and Airbnb built enormous wealth long before the general public had access.

What most people do not realize is that investing in private companies is not limited to venture capital firms or institutional funds. With the right setup, individuals can use retirement money to invest in private businesses through a Self-Directed IRA. Done correctly, this approach offers access to private markets while still keeping the powerful tax advantages of an IRA.

However, this strategy is not something to approach casually. How the investment is structured matters. The tax rules matter. And the custodian you choose may be the most important decision of all.

What Is a Private Placement?

A private placement is an offering of securities that is not registered or traded on a public stock exchange. Instead of listing shares publicly, companies raise money privately from a limited group of qualified investors under specific federal exemptions.

Private placements do not offer immediate liquidity and may take years before investors can exit. The tradeoff is access to early-stage opportunities where valuations are still developing and growth potential is often significantly higher.

Many of today’s leading companies were funded through private placements long before they became well known. Early investors who took on the risk often saw returns that the public markets rarely deliver.

Why Investors Look to Private Companies

Investing privately appeals to long-term investors who want ownership rather than trading activity. Instead of purchasing a stock after most of the growth has already occurred, private investing allows individuals to participate during a company’s most formative stages.

Private investments also offer diversification. These businesses do not rise and fall with daily market swings, and they often have different risk and return patterns than public equities. While private deals carry more individual risk, they can help balance long-term portfolios.

Many investors also appreciate the sense of connection that comes with owning a business they understand and believe in.

Who Can Invest in Private Companies?

Most private offerings fall under Regulation D or Regulation A.

Regulation D offerings generally require the investor to be accredited.
This usually means meeting certain income or net-worth thresholds.
Regulation A allows some companies to accept non-accredited investors, although the rules are more restrictive and require a higher level of regulatory oversight.

A Self-Directed IRA does not override these qualification rules. If you qualify personally, your IRA will typically qualify as well, as long as the investment is structured properly and the documentation is accurate.

Why Traditional Brokerages Block Private Investments

Many investors assume they cannot invest retirement money in private companies because their brokerage does not allow it. The limitation comes from the platform, not from the IRS.

Brokerages are built for public stocks, mutual funds, and ETFs. These assets integrate easily into automated systems, trading platforms, and fee-based billing. Private assets do not. They require manual review, legal documentation, and specialized reporting.

Because private placements create complexity without generating additional revenue for the brokerage, most firms simply disallow them.

The solution is not changing the rules. It is using an IRA structure that permits alternative assets.

What a Self-Directed IRA Actually Is

A Self-Directed IRA is not a new type of IRA. It is a standard IRA that is held by a custodian that allows alternative assets such as private equity, real estate, cryptocurrencies, secured loans, and more.

The IRS allows retirement accounts to own almost any asset except a few prohibited categories. Private companies are not on the prohibited list. The obstacle is the custodian, not the law.

However, not all Self-Directed IRA custodians offer the same level of support. Some provide only basic transaction processing. Others, like IRA Financial, provide tax guidance, structural review, and compliance oversight. Private investing requires much more than basic paperwork.

Why the Tax Benefits Matter

Using an IRA to invest in a private company can dramatically change long-term results.

In a Traditional IRA, gains grow tax deferred until you take distributions.
In a Roth IRA, qualified gains can be completely tax free.

A single successful private investment inside a Roth IRA can compound for decades without tax erosion. Outside an IRA, the same investment would likely be subject to capital gains tax, dividend tax, and possibly ordinary income tax, all of which reduce net returns.

Tax deferral and tax-free compounding give retirement investors significantly more leverage.

Where Taxes Can Still Apply: UBIT

Although IRAs are tax advantaged, they are not tax exempt in every situation. Under certain conditions, the IRS applies Unrelated Business Income Tax, known as UBIT.

UBIT can apply when an IRA:

• Directly owns an operating business
• Receives pass-through income from an LLC or partnership
• Invests in a business that uses debt financing

If net business income exceeds one thousand dollars in a year, UBIT may apply at rates up to 37 percent.
This is why proper structure is essential.

Why Business Structure Determines Tax Treatment

Most venture-backed companies are structured as C corporations. There is a reason for that.

A C corporation pays tax at the corporate level. When the IRA owns shares, the income it receives is considered investment income such as dividends or appreciation. Investment income is generally not subject to UBIT.

In contrast, LLCs and partnerships pass their income directly to the owner. If an IRA is the owner, the IRS may treat the IRA as if it is operating a business, which can trigger UBIT.

This is why many companies seeking institutional or retirement investors organize as C corporations.

Why IRA Financial

IRA Financial is a national leader in Self-Directed retirement structures. The firm serves more than 27,000 clients and administers billions of dollars in alternative assets. It was founded by Adam Bergman, a tax attorney who has written extensively on Self-Directed retirement strategies.

The firm prioritizes tax structure, compliance, and client support rather than selling investments. IRA Financial provides:

• IRA structuring
• UBIT and tax analysis
• Transaction review
• Document and subscription agreement evaluation
• Regulatory reporting
• Form 990-T filing when needed
• Ongoing consultation with tax professionals

For private company investing, this level of guidance is essential.

Conclusion

Private investing has historically created significant wealth for those who accessed it early. A Self-Directed IRA gives everyday investors the ability to pursue similar opportunities within a tax-advantaged structure.

However, success in private investing is not only about choosing the right company. It is about choosing the right structure and custodian. The business may grow, but the real question is whether you keep the gains.

With the right Self-Directed IRA and the right guidance, private company investing can become one of the most powerful strategies available to long-term investors.