Self-directed IRAs for startups: How it works

When it comes to building longer-term wealth, diversification is key—and savvy investors are increasingly looking beyond the public market to alternative assets like private company equity. If you're an investor interested in startups and want to leverage your retirement funds to access early-stage opportunities, a self-directed IRA (SDIRA) could be the solution you've been searching for.

In this guide, we’ll explain how self-directed IRAs for startups work, explore the benefits and risks of investing in private companies through a retirement account, and show you how to invest in startups with an IRA through Forge Trust.

What is a self-directed IRA (SDIRA)?

A self-directed IRA is a type of retirement account that allows you to go beyond the traditional menu of public stocks, bonds and mutual funds. With an SDIRA, you can hold a broad range of alternative assets—including real estate, precious metals and shares in private companies.

Unlike a standard IRA, which is typically managed by a brokerage or investment firm with a limited set of investment choices, a SDIRA is administered by a qualified custodian, like Forge Trust, who enables you to make your own investment decisions within IRS guidelines.

Why invest in startups with an IRA?

When you choose to invest in startups through a Self-Directed IRA (SDIRA), you don’t just have the potential to diversify your portfolio—you can further position your retirement strategy to capture potential growth from tomorrow’s market leaders. Here are some of the unique benefits of startup investing through a SDIRA:

1. Access high-growth potential

   Startups—particularly in sectors like fintech and artificial intelligence (AI)—offer potential outsized growth opportunities that could outperform traditional assets. Through an SDIRA, investors can allocate retirement capital toward promising early-stage companies with the potential to deliver long-term returns.

2. Be part of the innovation economy

   Startup investing puts you at the forefront of technological disruption. As a stakeholder in emerging ventures, you're not just investing in companies—you’re participating in the next wave of innovation that often redefines industries.

3. Diversify beyond conventional alternative investments

   While other alternatives like real estate, private equity funds or precious metals provide diversification, startup investments offer a unique risk-reward profile. They complement traditional and alternative asset mixes by introducing venture-level upside into your retirement strategy.

4. Support emerging markets

   Startup investing is not just a financial strategy—it’s a way to back founders and ideas you believe in. Whether you’re passionate about AI, digital health or fintech, for example, your investment can help fuel job creation, innovation and economic growth.

How to identify startup investment opportunities

Startup investing can be both exciting and rewarding—but identifying the right opportunities takes a strategic approach and the right resources. Whether you're new to early-stage investing or looking to hone your SDIRA, here are several effective ways to discover high-potential startups:

1. Explore opportunities on forgeglobal.com

Start your search with platforms that specialize in private market knowledge. Forge offers in-depth information about late-stage private companies, including insights into valuation trends, investor demand and secondary market availability.

2. Research angel investment groups

Local or national angel investor networks can connect you with curated startup opportunities—often before they're widely available. These groups often provide due diligence, founder presentations and community insights, making them a strong entry point for newer investors seeking support and analysis.

3. Research startup incubators and accelerators

Organizations like Y Combinator, Techstars and 500 Global regularly graduate early-stage companies looking for investment. Following these programs' demo days or reviewing their alumni can reveal high-quality opportunities in a range of industries, from fintech to AI and beyond.

4. Follow venture capital activity

Tracking where early-stage venture capital firms are investing can help you identify startups with strong market validation and backing. Tools like Crunchbase or PitchBook (or even public VC blogs) offer valuable insight into deal flow and startup performance trends.

How to invest in startups through a self-directed IRA with Forge Trust

Getting started with a self-directed IRA at Forge Trust is a straightforward process. Here’s how you can open an account and begin investing in startups or other alternative assets:

1. Open and fund your SDIRA

Start by choosing the type of IRA that suits your goals: a traditional IRA, Roth, SEP, or SIMPLE. Then, fund your SDIRA by:

• Making a contribution (subject to IRS contribution limits)
• Roll over funds from an existing retirement plan
• Transfer funds from another IRA

2. Identify your startup investment

You can source private investment opportunities independently or work with platforms that offer vetted startup deals. Ensure that the investment is IRA-compliant and doesn’t involve any prohibited transactions or disqualified persons, per IRS prohibited transaction rules

3. Submit investment authorization through Forge Trust

Once you’ve selected a target company to invest in, you’ll submit an “Investment Authorization” form through your Forge Trust account. This form provides details about the investment, including documentation requirements (i.e. subscription agreement, operating agreement).

Forge Trust will review the submission for administrative feasibility—not investment merit—and process the investment on your behalf.

4. Monitor and manage your investment

As the investment matures, any income (i.e. dividends or distributions) is deposited back into your SDIRA. Your investment sponsor or you are responsible for maintaining updated valuations, particularly for required minimum distributions (RMDs) or Roth conversions, if applicable.

You can view and manage your SDIRA portfolio anytime through Forge Trust’s secure online portal.

Risks and considerations

Alternative investments, including private company stock, involve specific risks that may be greater than those associated with traditional investments and may not be suitable for all investors, including:

• Limited liquidity: Startups are often longer-term, less liquid investments. It may take years to realize returns, if any.
• Valuation limits: Determining the value of shares in a private market company can be more difficult than valuing publicly traded shares due the limited amount of publicly discoverable data surrounding the shares and a more subjective valuation process. Unlike public companies, which have readily available market prices, private companies rely on various valuation methods that often involve estimates and assumptions.
• Risk of loss: Some startups fail, which may result in a total loss of your investment. Diversify your holdings and only invest funds you can afford to risk.
• Higher fees: Fees associated with investing in alternative assets in SDIRAs are generally higher than the costs associated with traditional IRAs due to the specialized nature of the investments.

Why choose Forge Trust for your self-directed IRA?

Forge Trust is one of the most trusted custodians for alternative investments, offering:

• Over 40 years of experience in custodial services
• Ease-of-use online account management
• Transparent and competitive fee structure
• Dedicated support for private company investments

Whether you're new to SDIRAs or an experienced investor, Forge Trust makes it easy to invest in private companies with your IRA and build a more dynamic retirement portfolio.

Final thoughts

With the growing popularity of alternative assets, more investors are discovering the benefits of using a self-directed IRA for startup investing. It can be a powerful strategy to tap into private market growth while maintaining the tax advantages of a retirement account.

If you're ready to take control of your financial future and explore startup investing, Forge Trust is here to help you every step of the way.

Start your self-directed IRA today.

Visit Forge Trust to open your account and begin investing in the future