Accepting IRA and Solo 401(k) Money in Your Syndication: A Sponsor's Guide
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Some of your investors will want to use retirement money. A self-directed IRA or a solo 401(k) can hold an interest in a syndication, and this widens your pool. It also adds steps that catch new sponsors off guard: a custodian that signs and wires on the investor's behalf, slower timing, extra tax reporting and rules about who can benefit. This guide covers what you need to run, not what the investor should decide. The investor's own adviser covers their tax position.
How does the process differ?
| Step | Individual investor | IRA or solo 401(k) |
|---|---|---|
| Investor of record | The person | The account, e.g. "Custodian FBO Name IRA" |
| Subscription signed by | The person | The custodian, often after the person directs the purchase |
| Funds wired from | The person's bank | The custodian's account |
| Timing | Days | Often longer, because of custodian review |
| Tax forms | K-1 to the person | K-1 to the account, and the account itself may owe tax on UBTI |
Ask the investor early which custodian they use, and have your subscription package ready in a format the custodian accepts. See self-directed IRA investing in syndications.
What is UBTI, and why should you mention it?
Tax-exempt accounts such as IRAs generally owe tax on unrelated business taxable income, and income from debt-financed property can count (IRS Publication 598). Apartment deals use loans, so some investors will have UBTI to report. A solo 401(k) is treated differently from an IRA in some respects. You are not the investor's adviser, so say this clearly in your materials and tell investors to ask their own tax adviser. Make sure your K-1 process can report the numbers the account needs. See the K-1 guide.
What are the prohibited transaction rules?
A retirement account cannot engage in prohibited transactions with a disqualified person, which includes the account owner and certain family members and entities they control (26 U.S.C. 4975). For a sponsor, the practical points are: do not accept an IRA investment that benefits the owner personally, and do not let a retirement account invest in a deal where the account owner or close family is the sponsor without proper advice. Accredited status for the account is checked too. See accredited investor definition and entity requirements.
How should you plan the timing?
- Ask early. Put "Are you investing from a retirement account?" on your commitment form.
- Send the package early. Give custodian-friendly documents as soon as the investor commits.
- Set the funding deadline with room. Allow more days than for a direct wire. See investor misses wire deadline.
- Confirm the wire details with the custodian, not an email attachment. See wire fraud.
- Record the exact title for distributions and the K-1.
Our take
Retirement money is real money, and investors who use it are often your most patient. Make the process simple for them, give a clear checklist and never promise a tax outcome.
Trade-offs and who this is not for
- Not for a rushed closing. Custodian timing can miss a tight deadline.
- Common mistake: wiring distributions to the person instead of the account.
- Not tax advice.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings with 5+ units from friends and followers who already trust them, under Rule 506(b) or 506(c). We are software, legal document preparation, escrow coordination and verification services. We are not a law firm, broker-dealer, investment adviser, funding portal, bank or escrow agent, and we do not hold investor money: investors wire their money to escrow at Enterprise Bank & Trust, in the deal's name.
DoorRaise keeps the deal in its own company with its own documents and a deal page, and runs an accreditation check on every investor, in 506(b) and 506(c) raises. Flat fees, never a percentage of the raise (see pricing). Create your free sponsor page.
FAQ
Can a self-directed IRA invest in a syndication?
Yes, if the custodian allows it. The custodian signs and funds, and distributions return to the account.
Do IRA investors owe tax on the deal?
They may owe tax on UBTI from debt-financed income. They should ask their own tax adviser.
Can I invest my own IRA in my deal as sponsor?
Be careful: prohibited transaction rules may apply. Get advice from a qualified attorney first.
How long does an IRA investment take to fund?
Longer than a direct wire. It depends on the custodian, so ask them early.
Sources
- IRS Publication 598, Tax on Unrelated Business Income of Exempt Organizations
- 26 U.S.C. 4975, prohibited transactions
- 17 CFR 230.501
- IRS, Instructions for Schedule K-1 (Form 1065)
This article is general information, not legal, tax or investment advice. Talk to a securities attorney and a retirement-plan adviser. DoorRaise is not a law firm, IRA custodian, broker-dealer, investment adviser or funding portal.