Hedge Funds in IRA's

[Guest TaxBill]

Are Hedge Funds an allowable investment within an IRA account. It seems as though they are handled like Private Placements, does anybody know by chance???? There is no reference in any publications that govern IRA's. Anybody????

[jpod]

I assume that by the term "hedge fund" you mean an unregistered interest in an investment vehicle that is typically a partnership or something else that is treated as a partnership for tax purposes, or even an off-shore corporation based in some tax haven. There is nothing about such investments that make them impermissible for IRAs. However: (1) it is not always possible, easy or inexpensive to find an eligible IRA trustee or custodian to hold these investments (remember: only a bank or trust company or an IRS-approved non-bank custodian can be an IRA trustee or custodian); and (2) quite often they throw off UBTI, which is not necessarily a bad thing, but it's an added complication.

[John G]

For the general reader, arguments against hedge funds:

Some hedge funds can expose you to risk beyond your initial pledge and therefore would be inappropriate to any IRA since you can not just add more money. It is a very rare person who is sophisticated enough and with deep enough resources to even think of this.... and I would imagine they would not be thinking about IRA accounts. Performance fees are very high. Results erratic. Initial amount to participate is often 50k and UP. For all the general investors on this message board, do not be looking a hedge funds.

Been there, done that. Don't get caught up in the "glamour", some of these folks are not very up front about their performance statistics. The SEC and other regulatory bodies do not focus on protecting taxpayers involved in hedge funds. They are expected to be savy investors and are more or less left to their own defenses. What is that latin phrase? caveate emptor?

[Bruce Steiner]

Yes, you can invest in a hedge fund in an IRA. We have helped several clients do this. There are some IRA custodians/trustees which will permit investments in hedge funds. There are some hedge funds which do not generate unrelated business taxable income.

[Jon Chambers]

You might be interested in the following article on hedge funds that we developed for one of our firm's newsletters.http://raid1.namehub.com/Advisors/schultzc...7%20FF%2014.pdf