One of the primary reasons the Self-Directed IRA has grown in popularity over the last fifteen years is the investment freedom it offers retirement account investors. With a Self-Directed IRA, one can use an IRA or 401(k) plan to invest in almost any type of asset, such as real estate, private businesses, investment funds, cryptos, gold, CBD, and much more. This article will explore how one can use a Self-Directed IRA to invest In CBD companies and the tax benefits associated with such an investment.
What is CBD?
The cannabis plant is one of the oldest cultivated plants on earth. Hemp and marijuana are different names for the same species of cannabis plant, cannabis sativa. Cannabis sativa plants contain tetrahydrocannabinol (THC) in their leaves and buds. THC is the psychoactive compound that gets users high. Different cannabis plants can have different levels of THC. Cannabis plants also contain cannabidiol (CBD) in varying amounts. Cannabidiol. Cannabis plants can be specifically bred to be high CBD or high THC. In general, cannabis plants with high THC levels (higher than 0.3%) are considered “marijuana.” Although several states have legalized marijuana in recent years, it remains illegal at the federal level. Whereas, plants with low THC levels, including those high in CBD, are called “hemp.” These plants can be used to create legal CBD products. Currently,47 of the 50 U.S. states – as well as the District of Columbia have legalized the sale and use of hemp-derived CBD products.
The CBD industry has been growing in popularity over the years as research studies have shown a positive correlation between using CBD products and improving health conditions amongst a variety of medical illnesses.
Why Invest in CBD
Many people invest in CBD due to increased use and acceptance throughout society. The global CBD market grew at a CAGR of over 32% between 2020 to 2024. CBD oil sales have increased 28% since 2020 and the CBD food and drinks market is estimated to be worth $5.9 billion. The growth associated with CBD is associated with the perceived medical benefits. According to a recent survey by Forbes Health, 60% of Americans have used CBD with many citing its medical benefits as their primary reason for use. Hence, there is a growing interest in investing in CBD. With a Self-Directed IRA, you can make CBD investments.
What is a Self-Directed IRA?
A Self-Directed IRA is not a legal term that you will find in the Internal Revenue Code. A Self-Directed IRA is essentially an IRA that allows for alternative asset investments, such as real estate or even cryptocurrency. Traditional financial institutions do not allow IRAs to invest in IRS-approved alternative assets, such as real estate, because their focus is on earning fees through traditional investments. Hence, the birth of the Self-Directed IRA industry.
Related: Alternative IRA Investments
How to Make CBD Investments with a Self-Directed IRA
Generally, there are two ways to invest in CBD investments with a Self-Directed IRA, (i) the full-service Self-Directed IRA, and (ii) the Self-Directed IRA LLC with “checkbook control.”
Full-Service Self-Directed IRA
A full-service Self-Directed IRA offers an IRA investor more investment options than a financial institution Self-Directed IRA. With a full-service Self-Directed IRA, a special IRA custodian will serve as the custodian of the IRA. Unlike a typical financial institution, a Self-Directed IRA custodian generates fees simply by opening and maintaining IRA accounts and does not offer any financial investment products or platforms. With a full-service Self-Directed IRA, the IRA funds are generally held with the IRA custodian, and at the IRA holder’s sole direction, the IRA custodian will then invest the IRA funds into alternative asset investments, such as private placement involving a CBD business or directly into a CBD investment. Investments are made in the name of the Self-Directed IRA and all investment income and gains from the Self-Directed IRA would flow tax-free to the IRA.
Self-Directed IRA LLC
The Self-Directed IRA LLC with “checkbook control” has quickly become the most popular vehicle for investors looking to make alternative assets investments, such as rental real estate that require a high frequency of transactions. Under the checkbook IRA format, a limited liability company (“LLC”) is created which is funded and owned by the IRA and managed by the IRA holder. The “checkbook control” Self-Directed IRA allows one to eliminate certain costs and delays often associated with using a full-service IRA custodian. The Checkbook IRA LLC structure allows the investor to act quickly when the right investment opportunity presents itself cost-effectively and without delay. The IRA investment into a CBD investment will be titled in the name of the LLC and not the IRA, providing the IRA owner with a greater degree of privacy, on top of the advantage of limited liability protection and greater control.
Tax Advantages of Making CBD Investments with an IRA
The Self-Directed IRA is the most popular Self-Directed retirement solution. A Self-Directed IRA is the perfect retirement or investment vehicle for anyone looking to use their IRA or 401(k) to invest in non-publicly traded securities. The primary advantages of using a Self-Directed IRA are you gain the ability to invest in almost anything you want, diversify your retirement assets, hedge against inflation, plus generate income and gains tax-free.
The concept of tax deferral stems from the notion that all income and gains the pretax retirement account generates will flow back into the account tax-free. Instead of paying tax on the returns of a Self-Directed IRA investment, such as real estate, you pay tax at a later date, so your investments grow unhindered. Hence, by making a CBD investment with a Self-Directed IRA, in general, all income and gains from the investment will flow back to the IRA without tax.
Why Use IRA Financial
IRA Financial “literally” wrote the book on the Self-Directed IRA. Our founder, Adam Bergman, Esq, has written 8 books on Self-Directed retirement plans and over the last 15+ years has helped over 24,000 Self-Directed clients invest over $3.2 billion in alternative assets.
IRA Financial Self-Directed IRA is specifically designed and customized for each type of investment. Whether it is real estate, private equity, venture capital, hedge fund, private business, cryptos, precious metals, hard money loans, and much more, our Self-Directed tax experts will work with you to design the perfect Self-Directed IRA solution for your investment. Additionally, IRA Financial is the only Self-Directed retirement company that provides annual consulting, IRS tax reporting/filings, BOI FinCEN reporting, and full IRS audit guarantee.
See for yourself why IRA Financial is one of the leading providers of Self-Directed IRAs in the country:
- Customized Self-Directed IRA design for your investment
- Flat annual fees
- No transaction or asset value fees
- No wire of check fees
- IRA & 401(k) personalized rollover support
- IRS tax reporting, including IRS Form 5498 & 1099-R
- BOI Reporting with FinCEN
- LLC IRS tax filing (Form 1065) and UBIT tax filings (Form 990-T)
- Free Self-Directed Roth IRA conversion
- Free RMD support
- Free tax research on Self-Directed IRA topics
One-on-one tax support on the “disqualified person” and “prohibited transaction rules.”
- One-on-one tax consultation on UBTI and UDFI rules
- Free access to our best-selling Self-Directed IRA books
- Free access to our educational webinars, podcasts, and newsletters
- Self-Directed IRA IRS audit guaranty
- Free HSA & Coverdell account for year 1 (value of $920)
