Adam Bergman

Private Equity Investments with a Self-Directed IRA: What You Need to Know

Private equity investing has traditionally been associated with institutions and ultra-high-net-worth investors. However, it has also played a significant role inside retirement accounts. One of the most well-known examples is former Massachusetts governor and presidential candidate Mitt Romney, who reportedly grew his IRA to more than $100 million by investing in private equity deals through Bain Capital.

So why would someone choose to invest in private equity using a Self-Directed IRA?

The answer comes down to taxes.

When private equity investments are held inside a Self-Directed IRA, gains can grow tax-deferred in a traditional IRA or potentially tax-free in a Roth IRA. This allows profits to compound without being reduced by annual capital gains or income taxes, which can dramatically impact long-term returns.

Below is what investors need to know about investing in private equity with a Self-Directed IRA and how to do it correctly.

What Is Private Equity?

Private equity is a broad term used to describe investment funds that pool capital from multiple investors, typically through a passthrough entity such as a partnership or LLC, to acquire ownership stakes in private companies. These investments may include:

  • Mature businesses in need of restructuring or operational improvements
  • Growth-stage companies seeking expansion capital
  • Distressed companies requiring a turnaround

Private equity is often confused with venture capital. While similar, there is a key distinction. Private equity generally targets more established, revenue-generating businesses, whereas venture capital focuses on early-stage companies that may have little or no revenue.

Both private equity and venture capital funds raise money from accredited investors, family offices, pension funds, institutions, and increasingly, Self-Directed IRAs.

Private equity funds typically earn revenue through:

  • A management fee, often around 2 percent annually
  • A carried interest, usually 20 percent of profits above a minimum return threshold

Although fees are higher than traditional investments like mutual funds or ETFs, investors participate with the expectation that returns will justify the cost.

https://www.youtube.com/watch?v=w_96WDCT2Pw

YouTube video: https://youtu.be/w_96WDCT2Pw

How a Self-Directed IRA Invests in Private Equity

A Self-Directed IRA allows you to use pre-tax, Roth, SEP, or SIMPLE IRA funds to invest in private equity and venture capital opportunities. There are two primary structures available.

1. Custodian-Controlled Self-Directed IRA

With a custodian-controlled SDIRA:

  • A specialized IRA custodian holds your IRA assets
  • At your direction, the custodian executes the investment into the private equity fund
  • The investment is titled in the name of the IRA

This structure works well for passive private equity investments that involve relatively few transactions, such as an initial capital contribution followed by occasional capital calls.

2. Self-Directed IRA LLC (Checkbook Control)

The Checkbook Control structure uses a specially formed LLC that is:

  • 100 percent owned by the IRA
  • Managed by you (without compensation) or a third party
  • Equipped with its own dedicated bank account

With this structure, you can fund private equity investments by writing a check or sending a wire directly from the IRA LLC bank account. This approach is ideal when timing matters, capital calls must be met quickly, or multiple private investments are involved.

For lower-frequency private equity investments, a custodian-controlled SDIRA is often sufficient. Investors seeking speed, flexibility, and reduced transaction friction frequently prefer the Checkbook Control model.

Understanding the Prohibited Transaction Rules

When investing in private equity with a Self-Directed IRA, compliance with IRS prohibited transaction rules under Internal Revenue Code Section 4975 is critical.

A “disqualified person” includes:

  • The IRA owner
  • A spouse
  • Parents, grandparents, children, and grandchildren
  • Entities controlled by the IRA owner or other disqualified persons

Your IRA cannot invest in a private equity fund if you or another disqualified person has:

  • An ownership interest
  • A management, employment, or compensated role
  • Any arrangement that provides a direct or indirect personal benefit

In simple terms, your IRA may invest in almost any private equity fund as long as neither you nor your family members are personally involved in the fund.

In some cases, it may be possible to invest in a fund where you have a professional relationship, but these situations require careful analysis to ensure there is no direct or indirect personal benefit. Prohibited transaction determinations are highly fact-specific, and mistakes can result in severe taxes and penalties.

Understanding UBTI in Private Equity Investing

Most private equity investments held in a Self-Directed IRA do not generate Unrelated Business Taxable Income (UBTI). However, UBTI can apply under certain circumstances, including when:

  • The private equity fund invests in an operating business held through an LLC or partnership
  • The underlying company generates active business income
  • The investment involves leverage or debt

For example, if a private equity fund acquires a manufacturing company structured as an LLC, the income allocated to the IRA may be subject to UBTI, which is taxed at trust tax rates of up to 37 percent.

If the underlying business is structured as a C corporation, which is the case for most public companies, UBTI does not apply.

Before investing, it is wise to discuss fund structure and potential UBTI exposure with the fund sponsor and a knowledgeable Self-Directed IRA advisor.

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Putting It All Together

Private equity is one of the fastest-growing asset classes inside Self-Directed IRAs. These investments are generally passive, involve relatively few transactions, and pose minimal prohibited transaction risk when the IRA owner has no personal involvement in the fund.

That said, investors must still carefully evaluate:

  • Fund structure and entity type
  • Potential UBTI or UDFI exposure
  • Disqualified person rules
  • Proper titling and documentation

When structured correctly, private equity can be a powerful tool for long-term, tax-advantaged retirement growth.

Why IRA Financial?

IRA Financial is the nation’s leading authority on Self-Directed IRAs and Checkbook Control solutions, serving more than 27,000 clients and administering over $5 billion in alternative-asset retirement funds.

What sets IRA Financial apart is not just experience, but true thought leadership. Founder Adam Bergman has authored nine books on self-directed retirement investing, including multiple works focused specifically on Checkbook Control IRAs and advanced IRA tax rules. Quite literally, IRA Financial wrote the book on Self-Directed IRAs.

Beyond expertise, private equity investing inside an IRA requires ongoing compliance, proper tax reporting, and the ability to navigate complex IRS rules involving UBTI, UDFI, partnership taxation, and multi-state LLC requirements. This is where IRA Financial is unmatched.

IRA Financial is the only major provider for Self-Directed IRA private equity investors that offers:

  • Annual compliance review and consulting
  • Unlimited access to in-house tax professionals for transaction structuring, prohibited transaction analysis, and UBTI review
  • Annual LLC tax reporting and ongoing maintenance
  • Customized transaction review before you invest
  • IRS-proven Checkbook Control structures with over 15 years of successful implementation

Whether you are investing in private equity, venture capital, hedge funds, or private companies, IRA Financial provides the compliance, tax expertise, and technical guidance needed to protect and optimize your retirement investments.

With unmatched experience, industry leadership, and a proven track record, IRA Financial remains the clear number one provider of Self-Directed IRAs and Checkbook IRA LLCs in the country.

by Adam Bergman

What Are the Requirements to Open a Self-Directed IRA?

Understanding the requirements to open a Self-Directed IRA is the first step toward gaining full control over how your retirement dollars are invested. A Self-Directed IRA (SDIRA) is a type of retirement account that gives you greater control over how your retirement funds are invested. Instead of being limited to traditional assets like stocks and mutual funds, a Self-Directed IRA allows you to invest in a wide range of IRS-approved alternatives. These can include real estate, private funds, precious metals, and more.

Over the past several years, Self-Directed IRAs have grown significantly in popularity. A major reason is market volatility. Many investors are looking for ways to diversify beyond the stock market and take a more active role in managing their retirement savings.

What the IRS Allows and Prohibits

The Internal Revenue Code does not specifically list what a Self-Directed IRA can invest in. Instead, it focuses on what is prohibited. Under IRC Sections 408 and 4975, certain investments and transactions are not allowed.

In general, a Self-Directed IRA may invest in almost anything as long as it does not:

  • Purchase life insurance
  • Invest in collectibles
  • Engage in a prohibited transaction under IRC Section 4975

Prohibited transactions typically involve “disqualified persons.” These include you, your spouse, your parents, children, grandparents, grandchildren, and any entities those individuals control. This means you cannot use your IRA funds to invest in a transaction that directly or indirectly benefits you or any other disqualified person.

Simply put, every investment made with a Self-Directed IRA must exclusively benefit the IRA itself.

Why Congress Allowed Alternative Investments in Retirement Accounts

Congress expanded the investment flexibility of retirement accounts largely to promote diversification. Diversification has long been shown to reduce risk associated with traditional equity markets.

Because many Americans hold most of their wealth inside retirement accounts invested almost entirely in stocks and bonds, allocating a portion of those funds to alternative assets such as real estate or private investments can help reduce risk and potentially improve long-term returns. Alternative investments may also provide steady income and offer a hedge against inflation.

Whether you are making new contributions, transferring an existing IRA, or rolling over a former employer plan, it is critical to follow IRS rules carefully to avoid unnecessary taxes and penalties.

Below are the key requirements every investor should understand.

1. Contribution Requirements for 2025 and 2026

One way to fund a Self-Directed IRA is through annual contributions. These are subject to IRS limits and income rules.

Traditional and Roth Self-Directed IRA Contribution Limits

2025

  • Under age 50: $7,000
  • Age 50 and over: $8,000

2026

  • Under age 50: $7,500
  • Age 50 and over: $8,600

These limits apply across all of your IRAs combined, including traditional, Roth, and Self-Directed accounts. Contributions for the 2025 tax year must be made by April 15, 2026.

Deductibility of Traditional IRA Contributions

Your ability to deduct a traditional IRA contribution depends on your income and whether you or your spouse participates in a workplace retirement plan.

For 2026:

  • Single filers covered by a workplace plan: phase-out between $81,000 and $91,000
  • Married filing jointly (contributor covered): phase-out between $129,000 and $149,000
  • Married filing jointly (contributor not covered, spouse covered): phase-out between $242,000 and $252,000

For 2025:

  • Single filers covered by a workplace plan: phase-out between $79,000 and $89,000
  • Married filing jointly (contributor covered): phase-out between $126,000 and $146,000
  • Married filing jointly (contributor not covered, spouse covered): phase-out between $236,000 and $246,000

Income Rules for Self-Directed Roth IRAs

Roth IRA contributions are subject to income limits. If your income exceeds these thresholds, you may still be able to use a backdoor Roth IRA strategy by contributing to a traditional IRA and then converting it.

For 2026:

  • Single filers: phase-out between $153,000 and $168,000
  • Married filing jointly: phase-out between $242,000 and $252,000

For 2025:

  • Single filers: phase-out between $150,000 and $165,000
  • Married filing jointly: phase-out between $236,000 and $246,000

While annual contributions are often the least common way to fund a Self-Directed IRA due to relatively modest limits, they remain an important option and should be maximized when possible.

2. Funding a Self-Directed IRA Through an IRA Transfer

The most popular way to fund a Self-Directed IRA is through an IRA-to-IRA transfer. This involves moving existing IRA assets from one custodian to another.

Direct Transfer (Trustee-to-Trustee)

This is the preferred method:

  • Funds move directly from your current custodian to your new SDIRA custodian
  • You never take possession of the money
  • No taxes, penalties, or IRS reporting for you
  • Unlimited direct transfers per year

This method is straightforward and avoids common mistakes.

Indirect Transfer (60-Day Rollover)

An indirect transfer is treated as a rollover:

  • Funds are paid to you
  • You have 60 days to redeposit them into another IRA
  • Limited to one per 12-month period across all IRAs
  • Missing the deadline results in taxes and possible penalties

Because of the risk involved, indirect transfers are generally not recommended.

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  • Learn about investing in alternative assets
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3. Rolling Over a Former Employer Plan

Another common way to fund a Self-Directed IRA is through a rollover from a former employer plan, such as a:

  • 401(k)
  • 403(b)
  • 457(b)
  • Thrift Savings Plan (TSP)

When done correctly, rollovers are tax-free.

Types of Rollovers

Direct Rollover

  • Funds move directly to your Self-Directed IRA
  • No taxes withheld
  • No penalties
  • Preferred method

Indirect Rollover

  • Funds are paid to you
  • Employer withholds 20 percent for taxes
  • You must redeposit the full amount within 60 days
  • Failure results in taxes and penalties

Direct rollovers are always the safest and most compliant option.

Triggering Events for Rollovers

You can only roll funds out of an employer plan after a triggering event, which may include:

  • Leaving your employer
  • Reaching age 59½ (depending on the plan)
  • Plan termination
  • Certain in-service rollover provisions

If you are still employed and have not met a triggering event, rollovers are typically not allowed unless the plan permits in-service rollovers.

4. Rules for Having Multiple IRAs

The IRS places no limit on the number of IRAs you can open. You may have Traditional, Roth, SEP, SIMPLE, Inherited, and multiple Self-Directed IRAs.

However:

  • Annual contribution limits apply across all IRAs combined
  • Assets must be properly titled and separated by account type
  • Direct transfers and rollovers can be done as often as needed

Many investors choose to consolidate multiple IRAs into one self-directed account for simplicity and flexibility.

Why IRA Financial Is the Leader in Self-Directed IRAs

IRA Financial is the leading provider of self-directed retirement solutions, serving more than 27,000 clients and administering over $5 billion in alternative asset retirement funds. We simplify the entire process by:

  • Managing transfers and rollovers from start to finish
  • Offering fast and compliant account setup
  • Supporting a wide range of alternative investments
  • Providing a modern platform with transparent, flat fees
  • Ensuring full IRS compliance
  • Delivering unmatched expertise and customer service

Whether you are contributing new funds, transferring an existing IRA, or rolling over an old employer plan, IRA Financial provides a safe, efficient, and trusted path to building a truly self-directed retirement strategy.

Conclusion

Opening and funding a Self-Directed IRA ultimately comes down to understanding a few core rules: contribution limits, transfer and rollover requirements, and plan triggering events. Once those basics are in place, you gain the ability to build a diversified retirement portfolio that extends far beyond traditional Wall Street investments.

In short, funding a Self-Directed IRA is flexible, accessible, and powerful. With IRA Financial’s guidance and technology, you can move your retirement dollars quickly and confidently into the alternative investments that align with your long-term goals.

by Adam Bergman

Self-Directed IRA vs. Traditional IRA: Key Differences Explained

The debate over a Self-Directed IRA vs. Traditional IRA often creates confusion, especially since both accounts follow the same IRS rules but offer very different investment opportunities.

For decades, the Individual Retirement Account (IRA) has been one of the most popular tools Americans use to save for retirement. But as alternative investments like real estate, private equity, cryptocurrency, startups, and precious metals have become more common, many investors are asking an important question:

What is the difference between a Traditional IRA and a Self-Directed IRA?

The answer is both simpler and more interesting than most people expect. From a legal and tax perspective, there is no distinction at all. The differences exist because of how financial institutions choose to operate, not because of how the IRS defines an IRA.

Below is a clear breakdown of how Traditional IRAs and Self-Directed IRAs differ, how Self-Directed IRAs came to exist, and what investors should look for when choosing a Self-Directed IRA custodian.

What Is a Traditional IRA?

A Traditional IRA, as most people use the term, refers to an IRA opened at a traditional financial institution such as:

  • Fidelity
  • Vanguard
  • Charles Schwab
  • Bank of America
  • Chase

These institutions primarily offer access to publicly traded investments, including:

  • Stocks
  • Bonds
  • ETFs
  • Mutual funds
  • CDs and money market funds

Traditional IRA providers are built around the Wall Street model. They earn revenue through commissions, spreads, asset-based fees, and managed investment products. Their platforms are designed for convenience, automation, and public market investing, not for holding alternative assets.

Because of this business model, traditional IRA custodians generally prohibit investments in most alternative assets.

What Is a Self-Directed IRA?

A Self-Directed IRA is simply an IRA that allows you to invest in the full range of assets permitted by the IRS, not just Wall Street products.

A Self-Directed IRA can invest in assets such as:

Nearly any investment is allowed, with the exception of collectibles and life insurance.

Importantly, Self-Directed IRAs follow the exact same tax rules as any other IRA:

  • A Traditional Self-Directed IRA grows tax deferred
  • A Roth Self-Directed IRA grows tax free

The only real difference is the custodian’s willingness and ability to hold alternative assets.

ERISA History: There Is No Legal Distinction Between IRAs

When Congress created IRAs under ERISA in 1974, the tax code made no distinction between a so-called Traditional IRA and a Self-Directed IRA.

Under the law, all IRAs were treated the same. Investors could invest in anything except:

  • Collectibles (IRC §408(m))
  • Life insurance (IRC §408(a)(3))
  • Prohibited transactions outlined in (IRC §4975(c))

So why did traditional banks and brokerages avoid alternative investments?

The answer is simple. It was not profitable for them.

Wall Street custodians make money by selling and managing financial products. They do not make money holding deeds, private fund documents, real estate contracts, operating agreements, or cryptocurrency wallets.

This was a business decision, not a legal restriction.

As a result, a new industry emerged: Self-Directed IRA custodians, typically trust companies designed specifically to hold alternative assets.

IRS Prohibited Transaction Rules: The Real Limitation

Whether you use a Traditional IRA or a Self-Directed IRA, all IRAs are subject to the same prohibited transaction rules under IRC §4975.

These rules prohibit transactions between your IRA and certain disqualified persons, including:

  • You
  • Your spouse
  • Your parents and grandparents
  • Your children and grandchildren
  • Any entity you control at 50 percent or more

Prohibited transactions include activities such as:

  • Using IRA assets for personal benefit
  • Buying or selling property between your IRA and a disqualified person
  • Providing services to an IRA-owned LLC
  • Taking personal possession of IRA-owned assets
  • Using IRA funds to benefit a business you control

Understanding these rules is critical. Violations can cause your entire IRA to lose its tax-advantaged status, which is why working with a knowledgeable custodian matters.

Why You Need a Specialized Self-Directed IRA Custodian

A Self-Directed IRA custodian is typically a state-chartered trust company authorized to hold retirement assets and process private, non-public investments.

Their responsibilities usually include:

  • Holding Self-Directed IRA assets
  • Processing alternative investment transactions
  • Reviewing documents for proper IRA titling
  • Filing required IRS forms such as Forms 5498 and 1099-R
  • Maintaining IRS compliance
  • Supporting checkbook control structures

Traditional IRA custodians generally do not offer these services because they lack the operational infrastructure, cannot process private investment documents, and rely on a product-based revenue model.

A true Self-Directed IRA custodian exists specifically to support alternative investments.

What to Look for in a Self-Directed IRA Custodian

Choosing the right Self-Directed IRA custodian is essential. Here are the most important factors to consider.

1. Deep Expertise in Alternative Assets

  • Real estate closings
  • Private equity and venture capital documentation
  • Cryptocurrency custody
  • Syndications and fund structures
  • Checkbook control LLCs
  • UBIT and UDFI rules
  • Prohibited transaction regulations
  • IRS reporting requirements

Without this expertise, small mistakes can lead to major tax consequences.

2. Flat Fees, Not Asset-Based Fees

Asset-based fees can significantly reduce returns over time.

For example, if you hold $500,000 in real estate and your custodian charges 1 percent annually, you are paying $5,000 per year regardless of performance. A quality Self-Directed IRA custodian charges flat fees. Your success should not increase your costs.

3. Ongoing Consulting and In-House Tax Support

  • Unlimited consulting
  • Access to tax attorneys
  • Prohibited transaction analysis
  • Investment structuring support
  • UBIT and UDFI review

This level of support is especially important for real estate, private equity, and startup investors.

4. Full IRS Tax Filing Services

  • Form 990-T for UBIT or UDFI
  • Form 1065 for IRA-owned LLCs
  • State LLC filings
  • K-1 reviews
  • Annual fair market valuations

Only a small number of custodians offer these services in house.

The IRA Financial Difference

IRA Financial is a national leader in Self-Directed IRAs and Solo 401(k) plans, serving more than 27,000 clients and administering over $5 billion in retirement assets. The firm is led by Adam Bergman, Esq., a tax attorney and one of the nation’s leading experts on self-directed retirement strategies, as well as the author of nine books on Self-Directed IRAs and Solo 401(k)s. IRA Financial stands apart through its flat fee pricing, fast account setup via web and mobile platforms, industry-leading compliance support, and comprehensive IRS tax reporting, and fair market value reporting. The firm also provides UBIT and UDFI tax filing services, full LLC tax filings using Form 1065, unlimited consulting, and deep expertise across all alternative asset classes, while pioneering the Checkbook IRA and Solo 401(k) structures.

No other custodian combines this level of legal expertise, technology, and tax reporting infrastructure.

Conclusion

While the tax code makes no distinction between a Traditional IRA and a Self-Directed IRA, the investment opportunities, custodial models, expertise, and fee structures are dramatically different.

If you want to invest in alternative assets like real estate, cryptocurrency, private equity, startups, or precious metals, you need a true Self-Directed IRA custodian, not a traditional brokerage.

With proven expertise, unmatched support, and a flat fee model built specifically for alternative investors, IRA Financial stands out as a leader in the Self-Directed IRA industry.

by Adam Bergman

Prime Interest Rate

How the Prime Interest Rate Impacts a Solo 401(k) Loan

For self-employed business owners, consultants, real estate investors, and side-gig entrepreneurs, the Solo 401(k) remains one of the most powerful retirement and tax planning tools available. It offers high contribution limits, Roth options, checkbook control, and, when structured properly, a loan feature that allows you to borrow from your own retirement funds without triggering taxes or penalties.

One of the most important components of the Solo 401(k) loan feature is the interest rate, which is directly tied to the Prime Rate. The Prime Rate changes over time and, as of December 10, 2025, stands at 6.75%. Because Solo 401(k) loan rates must be reasonable and consistent with commercial lending standards, most plan providers, including IRA Financial, use the Prime Rate as the benchmark.

Understanding how this rate works can help self-employed investors borrow strategically and manage retirement liquidity more effectively.

What Is a Solo 401(k)?

A Solo 401(k), also known as an individual 401(k), is a retirement plan designed for business owners with no full-time employees other than themselves and, in some cases, a spouse. It offers several key advantages:

  • Very high contribution limits compared to IRAs
  • Both Roth and traditional contribution options
  • The ability to invest in alternative assets such as real estate, private equity, private lending, cryptocurrency, precious metals, and more through a self-directed structure
  • Checkbook control, which allows faster and more direct investing
  • An exemption from UBTI on leveraged real estate
  • A loan feature that allows tax-free access to retirement funds

This combination makes the Solo 401(k) one of the most comprehensive retirement plans available to entrepreneurs.

How the Solo 401(k) Loan Feature Works

The IRS allows Solo 401(k) participants to borrow from their plans as long as specific rules are followed:

  • You may borrow up to 50% of your account balance, capped at $50,000
  • The loan must generally be repaid within five years, unless the loan is used to purchase a primary residence
  • Payments must include both principal and interest and be made at least quarterly
  • The interest rate must be reasonable and consistent with market lending rates

The industry standard for what qualifies as a reasonable interest rate, and the benchmark IRS auditors expect to see, is the Prime Rate. That is why the Prime Rate plays such a critical role in how Solo 401(k) loans are structured.

Why the Prime Interest Rate Matters

The Prime Rate is the interest rate banks charge their most creditworthy borrowers. It serves as a baseline for many types of commercial and consumer loans and is widely viewed as a fair reflection of market conditions.

As of December 10, 2025, the Prime Rate is 6.75%.

Because most Solo 401(k) plans use the Prime Rate to set their loan interest rate, changes to this rate directly affect:

  • Your Solo 401(k) loan interest rate
  • Your monthly payment amount
  • The total interest repaid over the life of the loan

Unlike a traditional bank loan, all interest paid on a Solo 401(k) loan goes back into your own retirement account. Even in a higher interest rate environment, you are paying interest to yourself rather than to a lender.

Example: Solo 401(k) Loan at the Current Prime Rate

To see how this works in practice, consider a standard Solo 401(k) loan using the current Prime Rate of 6.75%:

  • Loan amount: $50,000
  • Loan term: 5 years
  • Interest rate: 6.75%
  • Approximate monthly payment: $980 to $985
  • Total interest paid over 5 years: approximately $9,000

All of the interest paid flows directly back into your Solo 401(k), helping replenish the account over time.

If the Prime Rate decreases, monthly payments and total interest costs decline. If the Prime Rate increases, both rise. This is why it is important for Solo 401(k) participants to monitor interest rate movements before taking out a loan.

Why Self-Directed Investors Use This Feature

A Solo 401(k) loan can be especially valuable for entrepreneurs and investors who need flexibility. Common uses include:

  • Funding a new business or startup
  • Covering unexpected expenses
  • Accessing liquidity without triggering taxes or early withdrawal penalties
  • Managing cash flow during slower business periods
  • Avoiding high-interest credit cards or personal loans

For real estate investors, property flippers, and alternative asset investors, the ability to borrow from retirement funds while paying interest back into the plan is a significant advantage.

Why IRA Financial Is a Leader in the Solo 401(k) Industry

IRA Financial is one of the most trusted providers of Solo 401(k) plans, offering flexibility, transparency, and deep expertise. Clients choose IRA Financial because:

  • Plans are fully IRS-compliant and properly structured
  • Investors receive true checkbook control
  • Both traditional and alternative investments are supported
  • Loan documents are clear, compliant, and easy to administer
  • There are no hidden transaction fees
  • Tens of thousands of Solo 401(k) clients are served nationwide
  • More than $5 billion in retirement assets are administered

Entrepreneurs work with IRA Financial because they want a powerful, flexible, and investment-friendly Solo 401(k) plan designed to support long-term growth.

by Adam Bergman

Federal Bankruptcy Exemption for IRAs

Federal Bankruptcy Exemption for IRAs: What You Need to Know

When individuals file for bankruptcy under federal law, such as under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) , certain retirement accounts receive protection from the bankruptcy estate. For Traditional and Roth IRAs, but not Inherited IRAs in many situations, federal law provides an exemption that shields a significant portion of IRA assets from creditors during the bankruptcy process.

Outside of bankruptcy, however, creditor protection works very differently. In those cases, whether a creditor can access a debtor’s IRA or Roth IRA generally depends on state law rather than federal law.

Under current law effective April 1, 2025, the maximum aggregate federal bankruptcy exemption for IRAs and Roth IRAs is approximately $1,711,975, with the amount adjusted for inflation every three years. This means that if you file for bankruptcy and the total value of your IRA, including contributions and earnings, falls below this threshold, those assets are typically protected from liquidation by the bankruptcy trustee to satisfy creditor claims.

Employer-sponsored retirement plans, such as 401(k) plans that meet ERISA requirements, receive even stronger protection. ERISA-qualified plans generally enjoy unlimited protection under federal bankruptcy law. The bankruptcy code exempts ERISA-defined retirement funds without imposing a dollar cap. This level of protection does not apply to IRAs.

In short, the federal bankruptcy exemption for IRAs is limited, currently capped at roughly $1.7 million, while ERISA-qualified plans such as 401(k)s are often fully protected.

How the Federal Exemption Works

When you file for Chapter 7 or Chapter 13 bankruptcy, your assets become part of the bankruptcy estate. Depending on the chapter filed, those assets may be subject to liquidation or structured repayment. Section 522 of the bankruptcy code allows debtors to exempt certain assets from the estate by using either federal exemptions or state exemptions, depending on where they live.

For IRAs, the federal exemption under Section 522(n) generally applies unless your state requires the use of state exemptions or provides stronger protection under its own laws.

Under the federal exemption:

  • Traditional IRAs and Roth IRAs are protected up to the exemption cap, currently about $1.7 million.
  • Amounts rolled over from employer-sponsored retirement plans into an IRA are not counted toward this cap, provided the rollover meets applicable requirements. These rollover amounts retain unlimited protection.
  • Inherited IRAs, other than spousal inherited IRAs, are not treated as retirement funds for exemption purposes. The U.S. Supreme Court’s decision in Clark v. Rameker confirmed that inherited IRAs do not qualify for federal bankruptcy protection.

As a result, during bankruptcy, IRAs receive strong but not unlimited protection, assuming the exemption cap is not exceeded, and the account meets all qualifying requirements.

Outside of Bankruptcy: State Law Takes Over

If you are not filing for bankruptcy, the federal exemption does not automatically protect your IRA from creditors. Outside of bankruptcy, IRAs are not covered by ERISA’s anti-alienation rules. This means state law determines whether and to what extent creditors can reach IRA assets through lawsuits, judgments, liens, or garnishments.

Each state has its own statutes and court decisions governing creditor protection for IRAs, and the level of protection can vary significantly.

Examples of State Law Treatment

In Virginia, state law provides that IRAs are exempt from creditor process to the same extent permitted under federal bankruptcy law, as outlined in Virginia Code § 34-34 .

Florida offers some of the strongest IRA protections in the country. Under Florida Statute § 222.21(2)(a) , Traditional and Roth IRAs are fully exempt from creditor claims outside of bankruptcy, regardless of value.

Florida law protects:

  • Traditional IRAs
  • Roth IRAs
  • Rollover IRAs from 401(k)s, 403(b)s, and similar plans
  • SEP IRAs
  • SIMPLE IRAs
  • Inherited IRAs, which Florida explicitly protects and is uncommon among states

Georgia takes a more limited approach. Under Georgia Code § 44-13-100 , IRA distributions are exempt only to the extent reasonably necessary for the support of the debtor and the debtor’s dependents.

These examples highlight how dramatically IRA creditor protection can vary depending on state law. Some states offer broad protection, while others provide only limited safeguards.

Comparison: IRA vs. 401(k) Bankruptcy Exemption Rules

There are several key differences between IRAs and 401(k) plans when it comes to creditor protection.

Traditional and Roth IRAs are protected under federal bankruptcy law only up to approximately $1.7 million for the 2025 to 2028 period. Inherited IRAs are generally not exempt, and protection outside bankruptcy depends entirely on state law.

401(k) plans and other ERISA-qualified employer plans are generally protected without a dollar limit in bankruptcy, as long as the assets remain in the plan, and the plan maintains ERISA status. Outside bankruptcy, these plans also benefit from ERISA’s anti-alienation provisions, which shield them from most creditor claims.

While both types of accounts provide meaningful protection, 401(k) plans and other ERISA-qualified retirement plans offer broader and more consistent creditor protection than IRAs, both in bankruptcy and outside of it.

Why This Matters for Self-Directed Investors

If you hold a IRA or invest in alternative assets through an SDIRA, it is important to understand the limits of creditor protection.

  • Bankruptcy protection for IRAs is strong but capped at approximately $1.7 million.
  • If you live in a state that has opted out of federal exemptions, your level of protection may differ.
  • Outside bankruptcy, creditor protection depends entirely on state law.

For individuals seeking maximum creditor protection both in bankruptcy and outside of it, using an ERISA-qualified plan such as a 401(k) or Solo 401(k) may be a more effective strategy.

Conclusion

The federal bankruptcy exemption for IRAs provides a valuable shield for retirement assets when bankruptcy is filed, but that protection is not unlimited. The exemption is capped at $1,711,975 and adjusted for inflation every three years. Outside of bankruptcy, IRA protection depends entirely on state statutes, which vary widely across the country.

Compared to 401(k) plans and other ERISA-qualified retirement accounts, IRAs generally offer less comprehensive creditor protection. Understanding these distinctions is essential when structuring a retirement plan and an overall asset protection strategy.

by Adam Bergman

Self-Directed IRA

What Pearl Jam and Self-Directed IRAs Have in Common

In the late 1980s and early 1990s, alternative rock really was alternative. Bands like Pearl Jam, Nirvana, Soundgarden, and Alice in Chains were considered fringe. They were too raw, too different, and too unconventional for mainstream radio. Airplay was limited, record labels were skeptical, and critics often dismissed them as niche.

Fast forward to today, and it is completely normal to hear The Beatles, The Rolling Stones, Nirvana, and Pearl Jam played back-to-back on the same station. What was once “alternative” is now foundational. Pearl Jam is no longer fringe music. It is mainstream rock.

The same evolution has taken place in retirement investing, especially when it comes to Self-Directed IRAs and alternative investments.

When “Alternative” Really Meant Alternative

Alternative rock challenged the industry’s assumptions. It did not follow traditional formulas, did not fit neatly into existing categories, and was not initially built for mass appeal. Yet it resonated deeply with listeners. Over time, the audience grew, the industry adapted, and the definition of “mainstream” expanded.

That same path of resistance, skepticism, gradual adoption, and eventual acceptance closely mirrors the story of alternative assets inside retirement accounts.

What Is a Self-Directed IRA?

A Self-Directed IRA, often called an SDIRA, is an IRA that allows the account holder to invest in a much broader range of assets than a traditional brokerage IRA. Unlike standard IRAs that are typically limited to publicly traded stocks, bonds, ETFs, and mutual funds, a Self-Directed IRA can invest in:

  • Real estate
  • Private equity and venture capital
  • Hedge funds
  • Private businesses
  • Promissory notes
  • Gold and precious metals
  • Cryptocurrency and digital assets

The most important point is this: Self-Directed IRAs are fully legal and have existed since ERISA was enacted in 1974. The U.S. tax code allows IRAs to hold nearly any investment that is not specifically prohibited. The IRS outlines IRA rules, including investments and limitations.

The Original IRA Was Never Meant to Be “Traditional Only”

When Congress created IRAs under ERISA, it did something surprisingly forward-thinking. The Internal Revenue Code does not restrict IRAs to traditional investments. Instead, it allows IRAs to invest in almost any asset unless it is specifically prohibited, such as collectibles or life insurance.

From the very beginning, IRAs were permitted to hold:

  • Real estate
  • Gold and silver
  • Private investments
  • Alternative assets

So why did IRAs become synonymous with mutual funds? The answer is simple. Large financial institutions like Fidelity and Schwab built systems designed around public securities. Alternative assets were not excluded by law. They were excluded by infrastructure.

My Own “Pearl Jam Moment” With Self-Directed IRAs

I personally discovered the Self-Directed IRA industry in 2008 while helping a hedge fund client invest IRA funds into a hedge fund.

https://youtu.be/f4x83BcIVcY

At the time, I was a tax attorney with a Master’s degree in Taxation, working at some of the largest law firms in the world. I lived inside the Internal Revenue Code, yet I had never heard of Self-Directed IRAs.

That realization stopped me in my tracks.

If I did not know this industry existed, how could the average retirement investor?

When I told my colleagues I was leaving my law firm job to start IRA Financial, they thought I was crazy. They told me:

  • “Using IRAs to buy real estate isn’t big enough.”
  • “401(k)s are for mutual funds.”
  • “Alternative assets don’t belong in retirement accounts.”

But as a lifelong Pearl Jam and alternative rock fan, I had already learned an important lesson. What starts on the fringe does not stay there forever.

Why Investors Are Moving Alternative Assets into Retirement Accounts

Over the past decade, millions of Americans have started using IRAs and 401(k)s to invest in alternative assets. Why?

  1. Diversification
    Public markets have become increasingly correlated. Alternative assets can provide diversification beyond stocks and bonds.
  2. Inflation Protection
    Assets like real estate, private businesses, and commodities have historically served as hedges against inflation.
  3. Control and Knowledge
    Many investors understand real estate, private companies, or similar industries better than they understand public markets. A Self-Directed IRA allows them to invest in what they know.
  4. Tax Advantages
    Self-Directed IRAs retain all traditional IRA tax benefits:

  • Tax-deferred growth in a Traditional SDIRA
  • Tax-free growth in a Roth SDIRA

Rental income, private equity gains, and crypto appreciation can grow without current taxation.

What Alternative Investments Can You Hold in a Self-Directed IRA?

Most assets are permitted unless they are specifically prohibited. Common SDIRA investments include:

  • Real estate, including residential, commercial, and raw land
  • Private equity and venture capital funds
  • Hedge funds
  • Private business stock
  • Cryptocurrency
  • Gold and precious metals
  • Private notes and lending

The risk lies in the investment itself, not in the Self-Directed IRA structure.

Institutional Validation: Alternative Assets Go Mainstream

The mainstream acceptance of alternative investments is no longer theoretical. Larry Fink, CEO of BlackRock, the world’s largest asset manager, has publicly stated that investors should consider allocating a meaningful portion of their portfolios to alternative assets to improve diversification and long-term outcomes.

BlackRock’s actions support this view. The firm has significantly expanded into private equity, private credit, infrastructure, and real assets. When the world’s largest asset manager embraces alternatives, they are no longer truly alternative.

Regulatory Momentum: The 2025 Executive Order on Alternatives

In August 2025, President Donald Trump signed an executive order directing the Department of Labor to modernize fiduciary guidance around alternative investments in 401(k) plans. The goals included:

  • Reducing fiduciary uncertainty
  • Expanding access to private markets
  • Modernizing retirement investing
  • Encouraging responsible inclusion of alternative assets

For years, plan fiduciaries avoided alternatives not because they were illegal, but because the guidance felt unclear. That uncertainty is now beginning to fade.

The Power of a Self-Directed IRA

A Self-Directed IRA gives investors:

  • Broader investment choice
  • Tax-advantaged growth
  • True diversification
  • Inflation protection
  • Greater control over retirement capital

This is not about speculation. It is about alignment.

From Alternative to Mainstream

Today, Self-Directed IRAs are no longer niche. Millions of Americans use them to invest in real estate, private funds, gold, and digital assets. Financial institutions, regulators, and asset managers increasingly recognize that alternative assets are not optional. They are essential.

Just like Pearl Jam.

Once dismissed as alternative, Pearl Jam is now classic rock. Played alongside the Beatles and the Rolling Stones, studied, respected, and enduring.

The Bottom Line

Self-Directed IRAs did not suddenly become legal. They were always legal. They became understood. And just as alternative rock reshaped music by expanding what belonged on the radio, Self-Directed IRAs are reshaping retirement investing by expanding what belongs in a portfolio. Alternative assets are no longer alternative. They are mainstream.

FAQ: Self-Directed IRAs and Alternative Investments

Are Self-Directed IRAs legal?
Yes. They have existed since ERISA was enacted in 1974 and are fully permitted under the Internal Revenue Code.

Why don’t most banks offer Self-Directed IRAs?
Traditional custodians focus on public securities and often lack the infrastructure needed to custody alternative assets.

Are Self-Directed IRAs risky?
The risk comes from the investment itself, not the IRA structure. Proper compliance and due diligence are essential.

by Adam Bergman

Top Solo 401(k) Providers

Top Solo 401(k) Providers of 2026

Top Solo 401(k) providers are especially important to evaluate if you’re a self-employed professional or small business owner looking to maximize retirement contributions, as a Solo 401(k) is one of the most powerful tools available. Solo 401(k)s combine high contribution limits, tax-deferred or tax-free growth, and the flexibility to invest in alternative assets such as real estate, cryptocurrency, precious metals, and private placements, providing far more options than traditional retirement plans.

Selecting the right provider is crucial for managing costs, operational control, and compliance, especially when your strategy includes alternative investments. This guide analyzes the top Solo 401(k) providers for 2026 and highlights the features that matter most for self-directed investors.

Why Choose a Solo 401(k) for Alternative Investments in 2026

Solo 401(k)s are particularly attractive for alternative-asset investors because they offer:

  • High contribution limits: Accumulate more retirement capital annually with tax-advantaged growth.
  • Direct control: Checkbook control allows investors to execute transactions quickly without custodian delays.
  • Diversification: Access assets that hedge inflation or offer premium returns in exchange for illiquidity.
  • Advanced tax strategies: Roth Solo 401(k) conversions and Mega Backdoor Roth options provide long-term tax diversification.

These advantages make Solo 401(k)s ideal for investors who want to include real estate, private equity, cryptocurrency, and IRS-approved precious metals in their retirement portfolios.

Key Features to Compare Among Solo 401(k) Providers

When evaluating providers, focus on:

  • Fee Structure: Flat-fee versus asset-based or per-transaction fees. Flat fees preserve capital and simplify cost forecasting, while tiered fees can increase with account size.
  • Investment Options: Ensure the provider explicitly supports the alternative assets you intend to hold.
  • Checkbook Control: Enables direct investment via a plan-owned LLC bank account, reducing friction for real estate and private-placement deals.
  • Compliance and Support: Plan document updates, tax consulting, 5500-EZ filing, and audit protection reduce administrative risk.
  • Operational Speed: Turnaround times for funding and transaction processing are critical for time-sensitive alternative investments.

Alternative Assets in Solo 401(k) Plans

Asset Type Liquidity Custodial/Compliance Needs Tax/UBTI Considerations
Real estate Low to medium Clear title in plan name or LLC, property management segregation Leveraged purchases may trigger UBTI; mortgage interest reporting required
Cryptocurrency High volatility Custodian wallet or provider-enabled crypto, secure key management Standard tax treatment; trading inside plan is tax-deferred
Private placements / Private equity Very low Subscription docs, accredited-investor verification Long-term capital appreciation; must follow prohibited-transaction rules
Precious metals Low IRS-approved storage, segregated custodial holding Distributions taxed like other account assets; storage fees may apply

Understanding these differences helps investors select providers that support smooth execution and compliance. Checkbook control, operational support, and clear guidance on UBTI and prohibited transactions are especially important for real estate and private placements.

Comparison of Leading Solo 401(k) Providers

Provider Setup Fee Annual Fee Investment Options Checkbook Control Compliance and Support Notes / Reputation
IRA Financial $999 $399 Real estate, crypto, metals, private equity, promissory notes Yes Free plan updates, tax and consulting, 5500-EZ filing, audit protection, Mega Backdoor Roth 27,000+ clients, 2,000+ 5-star reviews; full-service self-directed support
New Direction Trust Company $30 $425 Real estate, promissory notes, metals No Limited; mostly custodial BBB-accredited; mixed reviews; tiered fees can grow quickly
Broad Financial $995 $149 Real estate, crypto, startups, crowdfunding, private lending, metals, private equity Yes Limited Mostly positive reviews; operational support for alternatives but minimal compliance guidance
IRAR Trust $0 $899 Real estate, promissory notes, private placements Yes Limited; mostly custodial Experienced with real estate; higher annual fees and slower approvals
Rocket Dollar Varies Varies Real estate, crypto, private placements Yes Operational guidance for alternative assets Strong for real estate execution; itemized fees may apply
E*TRADE Varies Varies Primarily traditional securities No Brokerage compliance; limited alternative support Best for mainstream securities, not deep alternative-asset investing

Why IRA Financial Stands Out

IRA Financial leads the pack for 2026 due to its unique combination of features:

  • Flat-fee, all-inclusive pricing: Setup and annual fees cover compliance, tax consulting, and reporting, preserving more capital for investing.
  • Broad alternative-asset support: Real estate, crypto, private equity, promissory notes, and IRS-approved metals.
  • Checkbook control and operational speed: Direct investments from a plan-owned bank account enable fast closings and private-placement subscriptions.
  • Compliance support: Full-service plan document updates, 5500-EZ filing, UBTI guidance, and audit protection reduce regulatory risk.
  • Strategic features: Mega Backdoor Roth and ROBS business funding options provide flexibility for high-saving self-employed investors.

IRA Financial combines operational flexibility with comprehensive support, making it ideal for investors focused on alternative assets while minimizing friction and compliance risks.

Book a free call with a self-directed retirement specialist

  • Review your self-directed retirement options
  • Learn about investing in alternative assets
  • Get all of your questions answered

Connect with an Expert

Choosing the Right Provider for Alternative Investments

When evaluating Solo 401(k) providers for alternative assets, focus on:

  • Fee clarity: Compare flat-fee versus asset-based pricing using projected account growth scenarios.
  • Operational workflows: Checkbook control, turnaround times for funding, and LLC setup speed.
  • Compliance support: UBTI handling, prohibited-transaction guidance, and tax consulting.
  • Asset compatibility: Confirm support for real estate, crypto, private placements, and metals.

Request sample timelines, documented procedures, and alternative-asset support examples to ensure the provider can execute your strategy efficiently.

Bottom Line

For self-directed investors seeking full control, predictable fees, and access to alternative assets, IRA Financial is the top Solo 401(k) provider of 2026. While other providers may excel in specific niches, such as operational checkbook control or mainstream brokerage platforms, IRA Financial’s integrated approach to fees, compliance, technology, and alternative investments makes it the logical choice for serious investors looking to maximize tax-advantaged retirement growth.

by Adam Bergman

Self-Directed Retirement Account for Business Funding

Using a Self-Directed Retirement Account for Business Funding in 2026

For entrepreneurs and business owners in 2026, traditional financing is no longer the only path to starting, buying, or expanding a business. Higher interest rates, tighter underwriting standards, and a cautious lending environment continue to make bank financing more difficult to access.

As a result, more founders are turning inward for capital and using retirement assets to fund their businesses. When structured correctly, retirement accounts can be used legally and tax efficiently to finance business ventures while still preserving long-term retirement benefits.

At first, the idea of using retirement funds to start or buy a business can feel risky. But when done properly, it can provide a powerful combination of diversification, tax advantages, and funding flexibility. Instead of relying on loans or giving up equity to outside investors, entrepreneurs can use capital they already control to build ownership, participate in growth, and retain decision-making authority.

That said, not all retirement funding strategies work the same way. Understanding the legal framework behind each option is critical.

Why Use a Retirement Account to Fund a Business?

Using retirement funds for business financing offers two major advantages: diversification and tax efficiency.

Most retirement accounts are heavily concentrated in publicly traded stocks and mutual funds. While this provides market exposure, it offers little control. A business investment moves retirement capital into an asset the owner can directly influence through experience, strategy, and execution.

Tax advantages further strengthen the case. Investment growth inside retirement accounts is generally tax deferred or, in some cases, tax free. When structured properly, business profits can accumulate inside a retirement plan without current taxation, allowing capital to compound more efficiently than it would in a taxable operating structure.

The key question is not whether retirement accounts can be used to fund a business. It is how they are used.

Method One: Self-Directed IRA Business Investment (Under 50 Percent Ownership)

A Self-Directed IRA allows retirement funds to invest in alternative assets, including private companies. However, IRS rules strictly limit the role the IRA owner may play.

Under Internal Revenue Code Section 4975, certain transactions between an IRA and a “disqualified person” are prohibited. The IRA owner is considered a disqualified person. This means IRA funds cannot be used to invest in a business that the owner controls or actively operates.

In general, an IRA may invest in a company only if the IRA owner owns and controls less than 50 percent of the business and does not personally benefit from the investment outside of normal retirement growth. IRAs may hold minority interests, act as passive investors, and invest in third-party ventures. They cannot fund an owner-operated business.

Because of these restrictions, this approach works best when the IRA participates as a silent partner or minority investor in someone else’s company.

Method Two: Solo 401(k) Loans

For self-employed individuals and small business owners with no full-time employees, a Solo 401(k) loan provides another funding option.

A Solo 401(k) allows the participant to borrow from their retirement account for business purposes. The maximum loan is the lesser of $50,000 or 50 percent of the account balance. Loans must generally be repaid within five years, with interest paid back into the participant’s own retirement account.

This structure works well for short-term capital needs such as inventory purchases, marketing campaigns, equipment upgrades, or working capital. Because the loan is made to yourself, there is no credit check and no lien placed on the business.

The main limitation is scale. For business acquisitions or capital-intensive startups, the Solo 401(k) loan limit is often not sufficient.

Method Three: Rollover as Business Startups (ROBS)

The ROBS strategy remains the only retirement-based structure that allows an individual to fully own and actively operate a business using retirement funds without violating IRS rules.

A ROBS arrangement involves forming a C corporation and establishing a 401(k) plan for that corporation. Retirement funds from an existing IRA or 401(k) are rolled into the new plan, which then purchases stock in the C corporation. The business receives the capital, and the retirement plan becomes a shareholder.

Because the retirement plan is purchasing employer securities, the transaction falls under a specific exemption in the Internal Revenue Code. Unlike IRA investments, the business owner is permitted to actively manage and operate the company.

Dividends paid to the plan grow on a tax-deferred basis. If the business is sold, gains inside the 401(k) plan are not subject to corporate or personal income tax.

ROBS offers unmatched flexibility and funding potential, but it must be implemented correctly. Proper plan design, corporate formation, and ongoing compliance are essential.

Comparison Table: Three Ways to Fund a Business with Retirement Funds in 2026

Feature Self-Directed IRA Investment Solo 401(k) Loan ROBS (Rollover as Business Startups)
Ownership IRA must own less than 50% of the business You personally own the business Retirement plan owns company stock
Operational Control Cannot operate or manage the business You run the business You actively operate the business
Legal Structure IRA invests in an LLC or corporation Loan issued from Solo 401(k) C corporation with a 401(k) plan
Active Involvement Not permitted Fully permitted Fully permitted
Maximum Funding No dollar limit if ownership remains under 50% Lesser of $50,000 or 50% of account value No funding limit
Tax Treatment of Profits Tax deferred or tax free Subject to normal business taxation Tax deferred or tax free
IRS Risk Level Moderate if structured incorrectly Low Moderate if improperly executed
Best For Passive minority investments Short-term or smaller capital needs Full business startup or acquisition
Plan Type Used Self-Directed IRA Solo 401(k) 401(k) with C corporation
Key Limitation No majority ownership or employment Loan amount cap and repayment terms Must operate as a C corporation

Why Working with the Right Company Matters

Retirement-based business funding involves IRS rules, ERISA requirements, and corporate law working together. Many providers focus on only one strategy. Very few understand all three.

Mistakes can result in penalties, plan disqualification, or retroactive taxation. In this space, compliance matters far more than cost.

Choosing the right provider is about experience, structure, and ongoing support, not just setup.

The IRA Financial Advantage

IRA Financial is one of the few firms in the country with deep expertise across all three retirement-based business funding strategies.

Founded by tax attorney Adam Bergman, the firm has helped thousands of entrepreneurs structure compliant retirement solutions. IRA Financial does not sell loans or investments. It designs and administers legal and tax-compliant systems built for long-term success.

With more than 27,000 clients and over $5 billion in assets, IRA Financial has established Self-Directed IRAs, Solo 401(k)s, and ROBS structures nationwide. The firm provides ongoing compliance support, operational guidance, and required reporting, making it one of the most comprehensive retirement providers in the industry.

Conclusion

Using a retirement account to fund a business in 2026 is no longer unconventional. When executed correctly, it is a legitimate and sophisticated capital strategy.

Each approach serves a specific role.

Self-Directed IRA investments are ideal for passive participation.
Solo 401(k) loans offer flexibility for short-term needs.
ROBS is the only structure that allows full ownership and active operation using retirement funds.

There is no universal solution. The right structure depends on ownership goals, capital requirements, and risk tolerance.

That is why working with a firm that understands all three strategies is essential. IRA Financial stands apart by offering Self-Directed IRAs, Solo 401(k)s, and ROBS solutions under one roof.

Funding a business with retirement assets is not just a transaction.

It is a strategy.

And when implemented correctly, it can redefine how entrepreneurs build wealth in 2026 and beyond.

by Adam Bergman

ROBS vs SBA Loans

ROBS vs SBA Loans: How Entrepreneurs Fund Businesses the Smart Way in 2026

Introduction: The Two Funding Tools Every Business Buyer Should Understand

For most aspiring business owners, the biggest barrier between ambition and actual ownership is not finding the right business or gaining experience. It is securing the capital needed to complete the purchase. Whether someone is buying a franchise, acquiring a profitable local company, or launching a new venture, the amount of funding required almost always exceeds what personal savings can support.

In 2026, entrepreneurs have more financing options than ever, yet most people understand only a small fraction of what is available. Among the most important but often misunderstood funding tools are SBA loans and Rollover for Business Startups, known as ROBS. These are commonly presented as competing strategies, but that view oversimplifies how real transactions are structured. In practice, SBA loans and ROBS solve entirely different challenges. Together, they create one of the most powerful and efficient paths to business ownership available today.

How Entrepreneurs Commonly Fund a Business

Business buyers generally explore a variety of funding approaches before arriving at formal financing. Some turn to family members or friends. Some bring in private investors who ask for equity or decision-making power. Others turn to venture capital, although venture investors tend to focus on technology and high-growth startups rather than traditional businesses.

When it comes to buying established companies, acquiring franchises, or entering industries such as hospitality, home services, manufacturing, or logistics, entrepreneurs typically end up with two institutional funding tools: SBA-backed loans and the use of retirement funds through ROBS. Most buyers eventually discover that the question is not which one to choose, but how to structure them together in a way that strengthens the deal, reduces out-of-pocket requirements, and improves approval odds with lenders.

Understanding SBA Loans: The Backbone of Traditional Business Financing

An SBA loan is not a loan issued directly by the government. Instead, it is provided by a participating bank, credit union, or non-bank lender and partially guaranteed by the Small Business Administration. This federal guarantee reduces lender risk and enables borrowers to access capital on better terms than conventional loans.

SBA loans are used to finance business acquisitions, buy franchises, acquire real estate used for business operations, or purchase large equipment portfolios. Despite their popularity, approval is never guaranteed. Lenders evaluate the business’s financial health, historical performance, cash flow projections, the borrower’s credit profile, operational experience, collateral, and even the industry as a whole.

A significant number of otherwise qualified applicants are denied for a single reason: they cannot meet the equity injection requirement. This is the minimum down payment required by lenders, typically between 10 percent and 30 percent of the purchase price. Many entrepreneurs are operationally strong and creditworthy but simply do not have the liquid capital needed. That is where ROBS becomes a game-changing tool.

What ROBS Is and Why It Exists

ROBS, or Rollover for Business Startups, is a legal structure that allows an entrepreneur to invest retirement funds into a business they will actively operate. It avoids income taxes and early withdrawal penalties by treating the investment as a rollover into a qualified plan rather than a distribution.

ROBS follows a formal statutory framework. The business is organized as a C Corporation. The corporation adopts a qualified 401(k) plan. Retirement funds from an existing account are rolled into the new plan, and the plan invests in the corporation by purchasing newly issued stock. The company receives cash, the retirement plan becomes a shareholder, and the entrepreneur is free to work in the business.

ROBS exists because Congress created an exception that allows qualified plans to purchase employer securities. This rule was originally designed to support employee ownership plans, but the same legal exception makes ROBS possible for entrepreneurs who want to use their own retirement money to fund their own business.

Why ROBS Is Legal Under Federal Tax Law

ROBS is grounded in the Internal Revenue Code. Section 4975 generally prohibits certain forms of self-dealing between retirement plans and plan participants. However, Congress created a list of explicit exemptions for transactions that are permitted. One of these exemptions allows qualified retirement plans to purchase stock issued by the employer sponsoring the plan.

This exemption enables structures like employee stock ownership plans. ROBS applies the same legal principle to entrepreneur-led companies. As long as the valuation of stock is accurate, the plan follows administrative rules, reporting is timely, and the structure is properly maintained, the transaction is entirely permissible.

The key is compliance. ROBS must be executed by professionals who understand the rules, maintain the plan annually, and ensure the structure continues to operate within statutory guidelines.

How ROBS Works Step by Step

  • A new C Corporation is created.
  • The corporation adopts a qualified 401(k) plan.
  • Funds from an existing retirement account are rolled into the new plan.
  • The plan purchases stock in the corporation at fair market value.
  • The corporation uses that capital to buy or operate a business.

The entrepreneur becomes an employee of the corporation and can take a salary. The retirement plan becomes a shareholder. The business receives working capital without incurring debt, giving owners a stronger starting position.

Profits can be reinvested in the business or distributed to the plan as dividends. When the business is eventually sold, the proceeds attributable to the plan’s ownership stake return to the retirement account. If the plan includes Roth components, those gains may later be tax free.

The Strategic Advantages of ROBS

  1. Full capital access without penalties
    Retirement funds become business investment capital without taxes or early withdrawal penalties.
  2. No debt burden
    ROBS introduces equity, not loans. There is no repayment schedule and no interest.
  3. No personal guarantees
    Banks often require personal guarantees, sometimes backed by home equity. ROBS avoids this entirely.
  4. Ability to work in the business
    Traditional retirement accounts restrict involvement. ROBS removes that barrier.
  5. Tax advantaged growth
    If the business pays dividends into the plan, those funds grow inside the plan on a tax-deferred or tax-free basis.
  6. Support for larger opportunities
    Because ROBS increases available capital, entrepreneurs can pursue acquisitions that otherwise might have been out of reach.

Why SBA Loans and ROBS Work So Well Together

ROBS and SBA loans function differently, which is exactly why they complement each other so effectively. SBA loans provide leverage by financing the majority of a purchase price. ROBS provides the equity investment needed to satisfy lender requirements. Most SBA lenders need buyers to contribute between 10 percent and 30 percent of the purchase price. For many deals, this represents the largest single hurdle.

With ROBS, retirement funds are invested into the new corporation and can be used to meet the equity requirement. The SBA loan then covers the rest. For example, if the buyer is acquiring a $1 million business and the lender requires a 20 percent equity injection, ROBS can supply the $200,000 investment while the SBA loan covers the remaining $800,000. This structure preserves personal savings, reduces personal risk, and often improves approval odds because lenders prefer deals with stronger capitalization.

Combining the two also opens the door to larger acquisitions where the buyer needs both equity and leverage. Instead of treating ROBS and SBA financing as conflicting solutions, modern business buyers treat them as partner tools that create a healthier balance sheet and a more lender-friendly transaction.

Additional Ways Entrepreneurs Use ROBS

ROBS is flexible and adapts to different deal structures. Some buyers combine ROBS with seller financing. Others bring in private investors for a minority stake. Some use ROBS exclusively to avoid debt altogether, especially when acquiring a low-cost service business. ROBS supports these variations because it adds equity without imposing restrictions on the overall deal structure, aside from compliance with retirement plan rules.

Why Provider Choice Matters

Executing a ROBS structure requires precision. The IRS expects proper valuation, accurate documentation, appropriate administration, and annual reporting. Improper execution can expose entrepreneurs to unnecessary risk, particularly in the event of an audit.

IRA Financial is widely recognized as an industry leader in the design, administration, and long-term maintenance of ROBS structures. Founded by tax attorney Adam Bergman, the firm has more than sixteen years of experience, has built high-integrity compliance systems, and oversees thousands of active plans across nearly every industry. Support extends beyond initial setup and includes plan administration, regulatory reporting, valuation reviews, transaction guidance, and ongoing audit protection.

For entrepreneurs pairing ROBS with SBA financing, IRA Financial also provides specialized guidance to ensure the structure remains compliant with lending requirements and SBA program rules.

Final Thoughts: ROBS and SBA Loans Are Partners, Not Competitors

ROBS is not a shortcut or a loophole. It is a legal mechanism built directly into federal tax law and used by thousands of entrepreneurs each year. Entrepreneurs who combine ROBS with SBA loans are not taking unusual risks. They are simply using the tools that have been designed to help people acquire businesses in a strategic and financially responsible way.

SBA loans deliver accessible leverage. ROBS provides tax-efficient equity. Together, they reduce personal financial strain, strengthen loan applications, and create a more stable foundation for long-term success. In today’s environment, the most successful business buyers are not choosing between ROBS and SBA loans. They are combining both to build businesses with less debt, healthier cash flow, and far greater control over their own financial futures.

by Adam Bergman

Using a ROBS account to buy a business

Using a ROBS Account to Buy a Business: A Smarter Way to Become a Business Owner in 2026

For many aspiring entrepreneurs, the best path to business ownership is not launching a brand‑new startup. It is using a ROBS account to buy a business. Whether it is a neighborhood restaurant, a car wash, a retail shop, a home services company, a medical practice, or a small manufacturing operation, local businesses can offer strong income potential and real influence in the places people live and work.

Even with these opportunities, one challenge stops most buyers before they begin: funding. Traditional loans come with strict lending standards. They require high credit scores, collateral, and often a significant down payment. Personal savings rarely go far enough. Increasingly, entrepreneurs are turning to a solution that does not involve banks, borrowing, or giving up ownership. It is called ROBS, short for Rollover for Business Startups. Learn more about ROBS here.

When structured correctly, ROBS allows you to use retirement funds to buy and operate a local business without taxes and without early withdrawal penalties. It is not a loophole. It is a legal strategy built into federal tax law to give people a way to use retirement savings as investment capital for business ownership.

Why Investing in a Local Business Is So Powerful

Local businesses offer something that index funds, ETFs, and startup pitches cannot match. You can see the operation with your own eyes. You can meet customers, review the books, talk to staff, and evaluate performance with real data. Most local businesses are already generating revenue, which gives you a starting point that is far more stable than a new venture.

Many of these businesses are also undervalued. A large percentage are owned by founders who are nearing retirement and have no clear exit plan. These owners often prefer selling to someone who will continue the legacy rather than turning the business over to a private equity group or out‑of‑state buyers. That creates opportunities to acquire profitable companies at fair and often favorable valuations.

Local business ownership also gives you direct control. Instead of depending on markets or fund managers, you influence growth through better operations, improved marketing, stronger customer experience, and strategic decisions. This level of control is difficult to find in traditional investment options.

Why Using Retirement Funds to Buy a Business Makes Sense

For many people, retirement accounts hold most of their wealth. Yet they are often told that these funds should not be touched until later in life. The truth is that retirement plans were designed for long‑term investing, and that includes investments in businesses.

ROBS turns retirement savings into a tool for ownership rather than letting the money sit passively in mutual funds. Without ROBS, withdrawing funds early would trigger taxes and penalties. Through a ROBS structure, you can roll retirement assets into a new qualified plan and use those funds to invest directly in the business you plan to operate.

The difference can be significant. For example, a $300,000 retirement account might shrink to $180,000 after taxes if it is withdrawn early. Through ROBS, the entire $300,000 can be invested in the business without losing a dollar to taxes or penalties. Instead of reducing your investment capital, you preserve it.

What Is ROBS?

ROBS stands for Rollover for Business Startups. It is a funding method that lets you use retirement funds to buy or start a business while avoiding taxes and early withdrawal penalties. It is the only strategy that allows you to invest retirement funds into a business you will actively operate. ROBS FAQs and requirements.

That distinction matters. A Self‑Directed IRA can invest in private companies, but it does not allow you to work in the business. ROBS removes that restriction entirely.

The system is based on a feature of federal tax law that allows a qualified retirement plan to buy stock in the company that sponsors it. Congress included this rule to encourage employee ownership. It is the same foundation used for ESOPs. ROBS simply applies those principles to entrepreneurs.

How ROBS Works

A proper ROBS setup follows a defined legal process:

  1. A new C Corporation is created.
  2. The corporation establishes a 401(k) plan.
  3. Your existing retirement funds are rolled into the new plan.
  4. The 401(k) plan buys stock in the corporation at fair market value.
  5. The corporation uses that capital to buy or operate the local business.

There is no taxable withdrawal. There is no loan. There is no interest. Your retirement account becomes an equity owner.

The Advantages of Using ROBS to Buy a Local Business

The most obvious benefit is access to retirement funds without taxes or penalties. Since the transaction is an investment rather than a distribution, the capital stays intact.

ROBS also lets you invest in yourself. Retirement plans typically prohibit any involvement with the business. With ROBS, you can own and operate the company, draw a salary, and actively build the enterprise.

There are tax advantages as well. When the business pays dividends to shareholders, the portion that flows to the retirement plan can grow tax‑deferred or even tax‑free if Roth features are included. Many local businesses reinvest profits, which increases the value of the company. When you eventually sell the business, the proceeds go back into the retirement plan. Depending on the plan set up, those gains may also be tax‑free.

ROBS also supports long‑term operations. Your company can adopt a 401(k) plan for employees, which strengthens compensation packages and improves retention.

Another advantage is that C Corporations benefit from the current 21% federal corporate tax rate. Retained earnings inside the corporation are taxed at a rate that is often lower than personal tax brackets.

Why Provider Choice Matters

ROBS is legal. Poor implementation is not. The structure requires proper plan design, ongoing administration, valuation support, and strict compliance. Without oversight, business owners could unintentionally create audit exposure.

This is where IRA Financial makes the difference.

Founded by tax attorney and author Adam Bergman, IRA Financial has structured thousands of ROBS plans across nearly every industry. The firm built its own plan documents, compliance systems, valuation frameworks, and administration platform to support clients year after year.

IRA Financial does not sell franchises or collect commissions from lenders. It focuses entirely on proper structure, compliance, and long‑term plan administration.

For more than sixteen years, the firm has helped entrepreneurs purchase businesses ranging from single‑location restaurants to manufacturing operations and service companies. IRA Financial provides support not only for setup but also for ongoing administration, IRS reporting, plan management, and audit protection. Explore ROBS services.

Final Thoughts

ROBS is not a shortcut. It is a structured, legal, and highly effective way to use retirement funds for business ownership.

Local businesses offer meaningful cash flow, community value, and personal fulfillment. When paired with ROBS, these businesses become tools for building long‑term financial security rather than sources of risk.

ROBS allows you to invest in what you know, in the community you serve, and in opportunities you can directly influence. Instead of relying on the stock market, you rely on your ability to lead and operate a business.

When done correctly, ROBS does not drain your retirement. It strengthens it. And no firm has helped more entrepreneurs achieve that than IRA Financial.

by Adam Bergman

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IRA Financial (IRAF) is not a law firm and does not provide legal, financial, or investment advice. No attorney-client relationship exists between the Client and IRAF, its staff, or in-house counsel. IRAF offers retirement account facilitation and document services only. Clients should consult qualified legal, tax, or financial professionals before making investment decisions. IRAF does not render legal, accounting, or professional services. If such services are needed, seek a qualified professional. Custodian-related service costs are not included in IRAF’s professional services.