When you think about creating wealth, you’re often thinking about your future. Questions like “how can I retire comfortably?” and “what investments will help me reach my goals?” may float around in your head. A common thought would be to shovel a bunch of money away in a savings account or use some funds to invest in the stock market, but what if there was a way to create a comfortable bucket of money for retirement while also putting money in your pocket now? Self-Directed IRA investing strategies could be the answer.

A Self-Directed IRA is a special type of retirement account that allows the account holder to invest beyond traditional public assets, opening the door to the world of alternative asset classes such as real estate, private entities, notes, land, oil and gas, and much more. On top of the ability to diversify your investment portfolio with Self-Directed IRAs, these accounts offer many other benefits like reducing taxes and providing possibilities for creative investing. This makes Self-Directed IRAs the perfect vehicle for creatively building wealth for not only the future, but today, too!

As a real estate investor, these accounts can be especially powerful, as they allow the possibility to utilize one of the most lucrative and creative investment strategies: partnering.

What Is Partnering?

One of the great features of self-directed IRAs is that they don’t have to be used solely on their own. Self-directed IRAs can work together by using a beneficial strategy called partnering. This term is used when one entity (or more) and an IRA come together to put up the funds for an investment.

The beauty of partnering is that it allows multiple buckets of money to get involved and grow at the same time. For example, a self-directed Roth IRA can partner with another self-directed Roth IRA in order to pool a larger sum of money together for a deal, and each account would receive some of the profit. Similarly, this can be done between self-directed accounts and personal funds, too.

In this strategy, all parties have a vested percentage of ownership in the deal. When doing this, the percentage of ownership is decided at the beginning. Any profit the investment receives is returned based on this outlined percentage of ownership. Additionally, the IRA would be responsible for its percentage of any expense associated with the investment, too.

The best part about partnering is that there is no limit to the number of partners that can come together. You could potentially partner 10 IRAs and 10 non-IRA investors together for one single deal, allowing each account to participate and receive benefit from the investment.

Who does Partnering work for?

Partnering can be beneficial for a variety of people. There are many occasions where the perfect deal is available, but the investor doesn’t have enough money in their IRA. This is where partnering with another IRA account, another money partner, or even your personal funds can help. You can pool funds together from multiple sources to make up the total cost of the purchase.

For investors who are just getting started or have a small-dollar account, partnering provides an opportunity to participate in deals that would normally be unavailable. Even having a small percentage of a total investment allows a smaller IRA to gradually grow. Oftentimes, Coverdell Education Savings Accounts (ESAs) will participate in partnering due to the limited yearly contribution.

It is also beneficial for account holders that have multiple IRAs. For those who want to utilize all of their accounts at once, this is a great way to have all accounts involved in one deal. Overall, partnering provides more possibilities for accounts to be involved in deals when they may not have been able to participate before.

Can I partner with myself?

Not only can one or multiple accounts be partnered together on investments, self-directed IRAs can also partner with personal funds. Partnering your self-directed IRA money with your own personal money outside of the IRA is one of the best ways to generate income for your retirement account and create cashflow for your pockets now, but it’s extremely important you are familiar with the rules so that you don’t get involved in a prohibited transaction.

Partnering with yourself is not to be confused with doing a transaction with yourself. Keep in mind that when partnering, both parties are working together to make the purchase, not transacting business between each other. As long as both parties remain on the same side of the fence, partnering with a disqualified person – like yourself – is doable. Understanding the rules surrounding disqualified people and prohibited transactions is crucial before entering into any deals or partnerships.

Just like you would with another partnership between two unrelated parties, when partnering with personal funds your IRA has a percentage of ownership and you do, too. As a reminder, that percentage of ownership is decided at the time of purchase and must remain the same throughout the life of the investment to ensure there is never any co-mingling of funds.

Being able to combine funds with other investors and IRAs opens a door to a whole new world of possibilities and understanding how to partner accounts can help expand your investor network. If you’re ever looking for more information on partnering or how to maximize all of your self-directed IRAs and personal funds, speaking to a certified IRA services professional is a great place to start! Building wealth doesn’t have to be done alone; all you need is the right partner.

Sarah Shellam, CISP, is a certified IRA specialist at Quest Trust Company and has been with the company for four years. After Graduating from the University of North Texas with a degree in journalism, she joined the Quest team in the marketing department. Within the past year, she has taken on the position of Marketing content writer, researching and writing various educational SDIRA articles and other content. In her free time, she enjoys hiking and traveling in the tiny house she built herself.

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  • Editorial Staff

    We believe in the positive, life-changing impact of real estate investing. Our mission is to help investors achieve their goals to build wealth, better manage time, and live a life full of purpose.

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