At Florida Funders, we love any opportunity to add more value to our clients’ portfolios, especially when it means working with companies that we know and trust. In this spirit, we’ve enjoyed a long and prosperous relationship with Advanta, a provider of self-directed IRA plans.

Advanta is a longtime partner of Florida Funders, leveraging our complementary offerings to help our clients access a greater range of high-yield opportunities. Alex Perny, a Business Development Specialist with nearly ten years at Advanta, took the time to meet with Saxon Baum, VP of Investor Relations at Florida Funders, to discuss the advantages of rolling over your IRA into a self-directed account. We also explored the powerful synergies that our clients unlock when they put their IRA to work with Florida Funders.

 

What is a Self-Directed IRA? (9:52)

Many investors have never heard of a self-directed IRA. They believe that investing is often a choice between higher flexibility and lower taxes. By this logic, they can either hold free capital to invest in alternative assets, such as real estate or private equity, or enjoy tax-deferred investments in an IRA but be limited to publicly traded securities, like stocks and bonds. On the contrary, investors can reap the benefits of both capital flexibility and preferred tax treatment with a self-directed IRA.

A self-directed IRA does not differ greatly, in legal or functional terms, from a more typical IRA like the ones TD Ameritrade or Fidelity offers. As Alex explains: “The difference between the accounts is that someone like TD Ameritrade is not set up to, or they have legal restrictions on, allowing investment in alternative assets, investments that don’t have a readily available market value. The difference is the ability to accurately report changes in valuation to the IRS. That’s where we come in.”

Advanta specializes in these alternative investments. Through the self-directed IRA, Advanta’s clients have far greater agency in terms of where to put their capital. The difference is that Advanta isn’t restricted to publicly traded assets and has no conflict of interest.

Self-directed IRAs like the ones Advanta offers are custodized, but Advanta does not manage the fund. This is important because it means you can invest your IRA funds however you see fit, including real estate and private equity. In Advanta’s language, “We are a non-advisory custodial firm and maintain a zero conflict of interest position with any client investment.” Since Advanta has no position in any investment and does not advise, no asset is off-limits due to a conflict of interest.

Why Do People Choose to Self-Direct? (12:25)

In the discussion, Alex gives us an in-depth look into how self-directed IRA’s offer increased freedom to put your capital where it best serves you, without the added taxes and fees. The main benefits he discusses are an added source of capital to invest with, lucrative tax benefits, and ease of use.

Additional Source of Capital

There’s a familiar problem that we often hear from our clients. They’ve found an exciting, high-growth company in our network that they would love to allocate capital to. The issue is that they simply don’t have enough free cash to invest. Often, these same clients have hundreds of thousands of dollars in their IRA accounts, earning minimal returns in Treasury securities or invested in highly-priced public equities. They think those funds are untouchable.

What we’re happy to tell our clients is that the money in your retirement account doesn’t have to retire. IRA’s aren’t just for low-interest bonds, highly-priced indexes and volatile stocks. As Alex informs, a Self-directed IRA from Advanta lets you transfer any amount of an existing IRA to their custody. Since Advanta doesn’t give financial advice, you have the power to invest in a much wider range of assets, including our funds and individual company offerings.

Stock Market Fatigue

Many people are simply tired of investing in public securities. Though the stock market has offered outstanding returns over the last five years, this performance has naturally led to higher and higher valuations. In the current economic climate, whether earnings will continue to buoy these valuations is an uncertain prospect. Venture Capital and early-stage investing offer a fighting chance at “finding alpha”, investments that can beat the broader market while allowing a portion of your portfolio to go toward more aggressive investments.

Ease of Use

Many do not realize the ease with which they can roll over all or part of their IRA into a self-directed plan, administered by Advanta. Just like rolling over any other IRA, it’s a very simple process, and doesn’t require you to close your existing IRA account or pay any extra fees. In addition, you can choose to transfer as much, or as little, money as you want in funding your IRA account.

At Advanta, nearly all retirement plans are eligible to have part or all funds custodized under a self-directed plan. Eligible plans include:

  • Traditional IRAs
  • Roth IRAs
  • Defined Benefit Plans (SEP IRA or Individual K)
  • 401K
  • Pension plans

Tax Benefits of Putting Your IRA with Florida Funders

Just like a traditional IRA, a self-directed IRA or Roth-IRA with Advanta offers distinct tax advantages.

You don’t include these investments on your personal income tax returns like you would if you invested directly in a Florida Funders deal instead of with a self-directed IRA. Anything that is generated or deposited to these types of accounts is always going to be tax-deferred or tax-free.

With a self-directed Roth IRA, you’re similarly front-loading the taxes on everything you deposit, so any type of return that you make from an investment is going to be completely tax-free. There are countless stories of big-time Silicon Valley angel investors leveraging their Roth accounts to make seed-stage investments that turn into hundreds of millions of dollars in returns they don’t have to pay taxes on.

Whether you get a 5x, 10x, or 1000x return on something that you’ve invested in via one of these accounts, not a dime of that would be taxable in the short or long term.

A Florida Funders Case Study (30:35)

In the webinar, Alex walked us through the process of using an Advanta Self-directed IRA to invest in a deal with Florida Funders, using Joe the fictional investor and the recently closed Stylust deal to demonstrate. It was a quick case study, and that’s because the process is highly streamlined. Alex walked us through Joe’s process, from finding the deal on Florida Funders, to moving funds from his traditional IRA to an Advanta IRA, to letting Advanta and Florida Funders take care of the rest.

The detailed steps are covered in the video, but are essentially as follows:

  1. Joe finds the deal on his Florida Funders Portal
  2. Directly from the Florida Funder Portal, he clicks over to open his Advanta IRA account
  3. Joe opens and funds an Advanta IRA account, rolling over funds from his existing IRA. Advanta helps expedite this process with a dedicated account manager.
  4. Joe lets his account manager know about the Stylust investment. A subscription agreement is written in the name of Joe’s IRA. He approves all necessary documentation through DocuSign.
  5. Advanta works with the dealer to ensure all documents are accurate.
  6. Advanta completes Joe’s purchase, and wires funds from the IRA.
  7. After purchase, the investment shows in both Joe’s Florida Funders profile and Advanta IRA.
  8. Moving forward, Advanta acts as a record keeper and administrator. The IRA grows through any increase in the investment’s value, such as dividend payments, or liquidation event.

 

Recap

Alex Perny met with Florida Funders to discuss the power of using Advanta’s self-directed IRA to invest with Florida Funders and other alternative assets. In the Webinar, he covered the basics of a self-directed IRA, where it differs from more conventional IRA, as well their great similarities. He also explored the benefits of using a self-directed plan, including greater free capital, a larger range of available investment opportunities, and tax advantages.

Alex also discussed the power of marrying an Advanta IRA with Florida Funders’ network of growing companies, enabling tax-deferred (or tax-free) returns in high-growth companies from the ground floor. We’d like to thank Alex for meeting with us, and as always, are very happy to partner with Advanta!

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