Privately placed investments can include closely-held C corporations, Limited partnership interests (LPs), Limited Liability Partnerships (LLPs) and Limited Liability Companies (LLCs). Operating companies which are engaged in a trade or business and are organized as LPs, LLPs or LLCs may present the potential for Unrelated Business Income Tax (UBIT). Additionally, if an LP, LLP or LLC borrows money to conduct business, the potential for Unrelated Debt Financing Income Liability Tax (UDFI) may exist. Such an investment requires a close analysis of any income tax effects on the return on your investment.
A promissory note is an extension of credit from one or more individuals or entities to another individual(s) or entities. An IRA is able to extend credit to any party (including corporations) as long as the party is not considered a “disqualified person”.
There are two categories of promissory notes:
secured and unsecured.
The most common example of a secured loan is a mortgage on a home. Mortgages, trust deeds, and deeds of trust are essentially the same thing. In some states a mortgage is called “trust deed” or “deed of trust.” Secured notes are backed by collateral which means that in the event the borrower defaults on the loan from the lender (in this case the IRA is the lender) the borrower agrees to supply the lender with the “collateral” or “security” in lieu of the principal balance of the loan.
An unsecured note is an extension of credit or a promise to pay one or more borrowers. Unlike a secured note, there is no collateral supporting the debt obligation in the event of default by the borrower. The lack of collateral generally makes these unsecured notes riskier than secured notes.
Investing in hedge funds in your IRA may be right for you if you meet minimum investment requirements for a particular fund.
Some investors who seek to hedge against market cycles or inflation have turned to assets such as gold, silver, platinum, or palladium as a way to further diversify their investment portfolios.
Another way to invest in real estate or in real estate debt/mortgages is through REITs.