May 27, 2016

The Basics Of Limited Partnerships

Diana Hoff
4 min

In a partnership, which is a type of unincorporated business organization, multiple individuals, called general partners, manage the business and are equally liable to the debts of the business.

Investors can invest their Self-Directed IRA in these businesses.

These investors are then called a limited partners.

They simply invest in the business but are not involved in management.

Limited partnerships are allowable investment for Individual Retirement Account holders with Mountain West IRA. The partnership does not pay income taxes, but the individual partners have to report their share of business profits or losses. This means the investment is subject to Unrelated Business Income Tax.

However, this is only if the IRA earns more than $1,000 in unrelated business income.

Although the investment might require the IRA to pay taxes, it requires little involvement by the owner since they are not involved in management.

This is one of the benefits of this type of private placement investment. One important advantage when investing as a limited partner is the liability limitation. If the business goes bankrupt or is sued, the investor is only responsible for their own investment and not the debts of the business. General partners have a much greater liability.

Some rules regarding partnership investment with a self-directed IRA include:

  • The partnership agreement must permit an individual retirement account or a qualified plan to be a partner
  • The partnership must comply with the appropriate state law, have a determinate life, and be assignable
  • The partnership subscription agreement must be signed by the investor as having been read and approved, and will be executed by Mountain West IRA on their behalf. Research and learn about Unrelated Business Income Tax and the company itself before making any investing decisions related to limited partnerships.

Visit the Mountain West IRA website to learn more about private placements such as limited partnerships.

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