How the JOBS act will open up new investment opportunities for your self-directed IRA

The Jumpstart Our Business Startups (or JOBS Act) was signed into law in April 2012. The JOBS Act’s primary goal is to make it easier for small- and medium-sized businesses to obtain investment capital. Many observers believe that the Securities and Exchange Commission’s current registration and disclosure requirements are too costly for many small businesses and are holding back economic growth. The key provisions of the JOBS Act come into force in 2013, and the SEC is expected to issue significant provisions by the end of January. While not originally intended as a means to expand investment opportunities for self-directed IRAs, the JOBS Act may certainly have that effect.

Here are some examples of how the JOBS Act will jumpstart your self-directed IRA

JOBS Act and Internet funding portals. The JOBS Act creates an exciting new opportunity for small investors, including those who have self-directed IRAs. New “Internet funding portals” can register with the federal government and allow “unaccredited” investors to easily invest in small, private companies. The amount that a particular individual can invest in any given calendar year will be based on his or her income, with an upper limit of $10,000 in aggregate investments per year. This new exemption from the existing registration and disclosure provisions is anticipated to create a new “crowdfunding” industry for private company investments.

With the JOBS Act, private companies can have more shareholders before registration. Under current law, a company can avoid registering its common stock with the SEC (which can require significant financial and time resources) so long as it has fewer than 500 shareholders. Under the new law, a company can avoid registration provided it has fewer than 2000 total shareholders, 500 of whom may be “unaccredited” investors. This could open up many new investment opportunities to all levels of investors. Current SEC rules specify that in order to be considered an “accredited” investor, an individual must have a net worth exceeding $1 million (excluding the value of his or her home) or have an income of at least $200,000 in each of the last two years and a reasonable expectation of the same income this year.

Greater information flows with the JOBS Act. The JOBS Act will relax many of the advertising and solicitation prohibitions that currently apply to private companies’ fund raising efforts. Because one of the biggest hurdles in making private company investments has been knowing where such opportunities exist, the new rules will likely make it easier for investors to learn about other investment options. Note that many of the underlying investments will still require that the investor be “accredited” pursuant to the SEC rules.

The JOBS Act has the potential to be exciting and rewarding to savvy self-directed IRA investors. However, the regulations implementing the new law have not come into force as of the writing of this article, so the exact requirements for any new investments have not yet been set. It’s wise to consult with an expert IRA custodian, such as Quest Trust Company, before making any final investment decisions with your self-directed account.

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