As Scott posted on the blog, you can use your IRA to invest in TechShop and get tax free gains. I have had Roth IRA with a traditional brokerage (Vanguard in my case) and decided to split out some of those funds to invest in TechShop through a self-directed IRA. It was amazingly easy to do.
1) Decide whether you want to invest in something other than mutual funds, stocks and bonds. With a self-directed IRA, you can buy rental property and make unsecured loans (subject to limitations to prevent double-dipping) at places like www.prosper.com, and invest in business start-ups.
2) I called my bank, USAA, and told them I wanted to open a self-directed IRA. The whole process to about 5 minutes, over the phone. When I hung up, I had a Roth IRA money market account just waiting for funds.
3) I called my broker and said I wanted to sell $$ worth of sharers in order to transfer cash to another Roth IRA account. That took about 10 minutes
4) Have the current custodian transfer funds from one account to the other.
5) Wait for the funds to clear the minimum 7-day holding period.
6) Write a check or wire funds to Techshop's account.
7) Build something- I need to make some bunk beds for my kids
8) Profit - unlike a traditional investment in stocks, this means that the annual profit distribution gets paid back to your self-directed IRA instead of watching a stock price go up.
Now, if your bank does not know what a self-directed IRA is and your brokerage doesn't either, don't be surprised. But http://www.theentrustgroup.com/locations/franchises/62/ can help you set-up a self-directed IRA.
I'll be happy to answer any questions that I can, but I'm not licensed to give investment advice.
Question re: exclusions in the IRC
Hi, Paladin. Did you run this by a tax attorney, accountant, etc.? I looked into an SDIRA in the past for a similar purpose and was advised by my financial advisor that it's taxable if there is any personal benefit from it outside of the cash return on the investment. I'm no lawyer myself and my prior delving into this issue was not exactly like what you've done. I don't know if you've accepted the free lifetime membership that is offered for particular investments, but I believe Internal Revenue Code usually considers something given in free in return for something else (money in this case) as personal benefit (conveys value). Let me know if you consulted a professional financial advisor, tax attorney, or accountant. Thanks!
§ 4975. Tax on prohibited transactions
here's the IRC--
http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00004975----0...
(c) Prohibited transaction
(1) General rule
For purposes of this section, the term “prohibited transaction” means any direct or indirect—
(A) sale or exchange, or leasing, of any property between a plan and a disqualified person;
(B) lending of money or other extension of credit between a plan and a disqualified person;
(C) furnishing of goods, services, or facilities between a plan and a disqualified person;
(D) transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan;
(E) act by a disqualified person who is a fiduciary whereby he deals with the income or assets of a plan in his own interests or for his own account; or
(F) receipt of any consideration for his own personal account by any disqualified person who is a fiduciary from any party dealing with the plan in connection with a transaction involving the income or assets of the plan.
That's correct and I did run
That's correct and I did run this past a CPA in detail. I cannot benefit from a free lifetime membership as a result of my investment without putting my IRA investment at risk of taxation. However, as long as long as I do not receive any special benefits, I can still legally make the investment and be a member of techshop. Frankly, I felt the investment was compelling anyways, even without a lifetime membership.
Great. Thanks for the clarification.
Good to know. I'm sure others would be interested in this, in case they were going to try and do the same.