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Step Three: Request Funds and Direct Your Investment
When you are ready to make your investment, the next step is to complete a Direction of Investment form that details information about the investment. Information may include the amount of the investment, where to send the funds, and if there is documentation that requires signing.
Step 3 is where you will notice a difference between investing in alternative assets inside and outside an IRA.
It is important to remember that your IRA is a separate entity from yourself. Your IRA is what owns the investment, not you personally. Even though it is your IRA, you cannot access your funds directly if you hope to benefit from the tax advantages of your account.
This is why your account must be held and administered by a financial institution, such as a custodian like Equity Trust. As the IRA investor, you direct your custodian to process the investment on your IRA’s behalf.
To do so, there are various forms that need to be completed depending on the type of investment you select. These forms describe the terms of the transaction, include any supporting documentation related to the investment, and provide your custodian with the amount of money to invest and where to send the funds.
A critical aspect of Step 3 is ensuring the correct title of your IRA investment. It is important to remember that all documents related to the investment must be titled in the name of your IRA, not you personally. The proper titling format for single ownership is:
Equity Trust Company Custodian FBO (your name or account number) IRA
FBO stands for “for benefit of” and is the only part of the investment title that can be abbreviated. You must use your full legal name or, if you’d like more anonymity, you may elect to use your account number instead.
As you’ll see in the next few steps, this titling format ensures that all funds, expenses, and profits flow to and from the IRA without passing directly to the individual account owner. It is important to follow these steps to ensure your investment realizes the tax advantages of your IRA.