Many Americans, including many accredited investors, self-direct their Individual Retirement Accounts, meaning they choose what to invest in and how much. As such, self-directed IRAs are a great target market for Crowdfunding portals.
But sometimes even too much of a good thing is too much. If IRAs and certain pension plans take 25% or more of a deal, then the complicated ERISA rules come into play. The assets of the deal itself – whether a real estate project, a tech startup, or otherwise – are deemed to be “plan assets,” with the following undesirable consequences, among others:
- The project sponsors will be subject to ERISA’s stringent fiduciary duties
- The project is subject to annual reporting, open to the public
To make sure that doesn’t happen, portals should bake a measuring tool into their technology, flashing red as investments from IRAs and pension plans approach 25%.
Questions? Let me know.
6 thoughts on “IRAs As Crowdfunding Investors”
Great post! I have a question because I’m not familiar with these rules.
If I raise equity for a real estate deal and let’s say I raise the entire 25% equity stake needed for the bank from private investors and it’s all IRA money, do these ERISA rules still come into play even if I don’t use a portal?
I’m glad you shared this info because the ERISA rules are brand new to me.
Thanks for the compliment. Yes, the rule would still apply in the circumstances you describe. But if you raise 24% from IRAs and 1% elsewhere, they won’t.
Thanks for the clarification, I really appreciate it!
Hey just waqnted to give you a quick heads up annd let you know a few off
the pictures aren’t loading properly. I’m not sure wwhy but
I think its a linnking issue. I’ve tried it in two different browsers and both show the same outcome.
Thanks very much. I’ll have our IT folks look into it.
Update: My IT people say it’s your browser. They suggested clearing cookies and updating the browser. Hope that helps.