Including Limited Partnerships (LPs)
What you need to know about partnerships before you invest.
A partnership is a type of unincorporated business entity in which multiple people (“partners”) manage the business and are responsible for its debts. In the case of your self-directed Individual Retirement Account (IRA), the IRA becomes one of the partners and is responsible for expenses and receives income based on the percentage of its investment. You can partner your funds from multiple IRAs or retirement accounts, partner your IRA and your personal funds, or partner with your family members, friends, or business partners and/or their IRAs.
A limited partnership differs from other partnerships in that partners can have limited liability, meaning they are not liable for business debts that exceed their initial investment.
Establishing a partnership (or limited partnerhip) is a common strategy used in real estate investments.
Common reasons investors choose partnerships
- Since multiple partners are involved, you’re able to spread out the risk
- It enables you to make larger purchases if you don’t have enough money in your IRA
- This is one of the few times you can invest with a disqualified person (for the initial purchase)
Common risks when investing in partnerships
- Partnering IRA funds with personal funds is risky, as you could be opening yourself up to an IRS audit
The Internal Revenue Service (IRS) has certain rules to keep in mind when considering an investment in partnerships.
- If an IRA is investing in a partnership, the IRA must be a passive partner; it cannot be the general partner.
- Partnerships may incur unrelated business taxable income (UBTI). Tax owed on this income must be paid from cash held within the IRA holding the partnership and filed on IRS Form 990-T. If your partnership investment incurs UBTI, consult a competent tax professional to prepare a Form 990-T and contact Provident for instructions on paying any taxes your IRA may owe.
Curious about your self-directed IRA options?
3. Send your supporting documentation
Along with your Direction of Investment form, you must provide the following:
-Copy of the Tax ID (EIN) confirmation from the IRS
-Certificate of Partnership
4. Receive a confirmation
You will receive an email confirmation once your request has been processed and your funds have been scheduled to leave your account. -Copy of the Tax ID (EIN) confirmation from the IRS.
You are responsible for performing due diligence on your investment. Every investment has unique risks and any decision to invest should only be made after you conduct a thorough review of the investment and any parties related to the investment. Provident Trust Group is a passive, directed custodian and as such does not provide any type of investment advice or due diligence.