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Investing in alternative assets, startups, and private equity can generate substantial wealth—but only if structured correctly. The right strategy can eliminate capital gains taxes, maximize retirement savings, and optimize cash flow. By combining Qualified Small Business Stock (QSBS) investments with Self-Directed IRA (SDIRA) strategies, investors can build a tax-efficient portfolio that balances high-growth opportunities with long-term wealth preservation.

In this guide, we’ll explore how to partner IRA money with QSBS investments to create the perfect portfolio for long-term tax efficiency.

The Two Most Powerful Tax Advantages: QSBS & IRA Investing

1. Qualified Small Business Stock (QSBS) – The Ultimate Tax-Free Investment

   The QSBS exemption (under Section 1202 of the U.S. tax code) allows investors to exclude up to 100% of capital gains on the sale of qualified startup stock, provided they meet these criteria:

   • The investment is in a C-Corp with less than $50M in assets at the time of investment.

   • The investor holds the shares for at least five years.

   • The business operates in a qualifying industry (e.g., tech, healthcare, manufacturing).

2. Self-Directed IRA (SDIRA) – Tax-Advantaged Growth for Alternative Investments

   A Self-Directed IRA (Traditional or Roth) allows investors to hold private equity, real estate, and startups inside a retirement account. The tax benefits depend on the account type:

   • Roth IRA: Investments grow tax-free, and withdrawals are 100% tax-exempt in retirement.

   • Traditional IRA: Investments grow tax-deferred, and taxes are paid upon withdrawal.

How to Combine QSBS and IRA Investments for Maximum Tax Savings

Many investors wonder: Should I invest in a startup using my IRA or personal funds? The answer depends on the startup’s QSBS eligibility and the type of returns expected. Below, we outline the ideal strategy for different asset classes.

1. Investing in Startups: QSBS vs. Roth IRA

   When investing in early-stage startups, choosing the right account is crucial.

   Investment Type

   Best Account Type

   Tax Benefit

   QSBS-eligible Startup

   Taxable (Personal, Trust, or LLC)

   100% capital gains exclusion after 5+ years

   Non-QSBS Startup

   Roth IRA

   100% tax-free growth

   Venture secondaries or pre-IPO Shares

   Roth IRA or Checkbook IRA

   Tax-free or tax-deferred growth

   Example:

   • You invest $200,000 in a QSBS startup using personal funds and hold for 6 years.

   • The company exits for $5 million, and your $4.8 million gain is completely tax-free under QSBS.

   • If you had invested through an IRA, the QSBS exemption wouldn’t apply—you would still owe tax on Traditional IRA withdrawals or be limited by Roth IRA contribution caps.

   Takeaway: Use personal or taxable accounts for QSBS investments and Roth IRA for non-QSBS, high-growth startups.

2. Private Equity & Venture Funds: Best for SDIRAs

   For investors looking at private equity funds, debt funds, or real estate-backed investments, Self-Directed IRAs (SDIRAs) provide an ideal tax shelter.

   Why?

   • These investments don’t qualify for QSBS (since funds aren’t “active businesses”).

   • IRA structures eliminate immediate tax burdens on fund distributions and capital gains.

   Example:

   • You invest $250,000 in a private equity fund inside an SDIRA.

   • The fund returns 4x in 8 years, growing to $1M tax-deferred.

   • If held in a Traditional IRA, you pay taxes only upon withdrawal—or tax-free in a Roth IRA if converted early.

   Takeaway: Use SDIRAs for passive income investments like PE, debt funds, and real estate.

3. Pre-IPO & Secondary Market Investments: Ideal for Roth IRA or Checkbook IRA

   If investing in late-stage pre-IPO companies (e.g., SpaceX, Stripe, Databricks), using a Roth IRA or Checkbook IRA ensures tax-efficient compounding.

   Best for:

   • Restricted stock purchases before IPOs.

   • Startup secondaries and employee share liquidity events.

   • Venture debt funds with growth potential.

   Example:

   • You invest $150,000 from a Roth IRA into pre-IPO shares of a fintech startup.

   • The company IPOs at a $5 billion valuation, and your stake grows to $2 million.

   • Because it’s inside a Roth IRA, all gains are tax-free.

   Takeaway: Use Roth IRA for high-growth pre-IPO investments to avoid capital gains taxes.

4. Real Estate, Crypto, and Hard Assets: Best for Checkbook IRA

   For investors interested in real estate, crypto, or other alternative assets, a Checkbook IRA (a self-directed IRA with an LLC) provides greater control and tax efficiency.

   Best for:

   • Real estate syndications & rental properties.

   • Cryptocurrency investments inside an IRA.

   • Alternative lending & peer-to-peer investments.

   Example:

   • You use a Checkbook IRA to buy a rental property inside a tax-free Roth IRA.

   • Rental income and appreciation grow tax-free, and you sell it in 10 years with zero tax liability.

   Takeaway: Checkbook IRAs allow for tax-advantaged alternative asset investments.

Creating the Perfect Portfolio: A Balanced Strategy

Here’s how you can diversify your investment capital to leverage QSBS and IRA benefits.

Final Takeaways

To build an optimized, tax-efficient investment portfolio, follow these steps:

• Use personal or trust accounts for QSBS startup investments to maximize 100% capital gains tax exclusions.

• Invest non-QSBS startups via Roth IRA to ensure tax-free growth.

• Use SDIRA for private equity, venture debt, and real estate funds to defer taxes on passive income.

• Utilize a Checkbook IRA for quick capital deployment in crypto, real estate, and pre-IPO secondaries.

• Convert Traditional IRA assets to Roth IRA before a big valuation spike to avoid future taxes.

By combining IRA strategies with QSBS investments, investors can eliminate capital gains taxes, grow wealth tax-free, and structure a portfolio that thrives in any market condition.

Need Help Structuring Your Tax-Optimized Portfolio?

If you’re looking to invest in startups, private equity, or alternative assets, we can help you structure your investments for maximum tax efficiency. Contact us today to build a customized investment strategy that leverages QSBS and IRA advantages!

Bernstein Private Wealth Management recently collaborated with the California CPA Association to host an event focused on tax optimization strategies for individuals and families looking to build wealth. The event highlighted the benefits of using trust structures, self-directed custodians, and alternative investment custody solutions as essential tools for long-term tax planning and wealth preservation.

The Power of Trusts, Self-Directed IRAs, and Alternative Investment Custody in Tax Planning

A strategic combination of trusts, self-directed custodians, and alternative investment custody solutions provides unique opportunities for investors to:

• Minimize tax liability over their lifetime

• Preserve and grow assets in a tax-efficient manner

• Ensure smooth wealth transfer to future generations

By leveraging self-directed IRAs (SDIRAs) through alternative investment custody, investors gain the flexibility to diversify their portfolios into real estate, private equity, and other non-traditional investments—all while benefiting from tax-deferred or tax-free growth.

Qualified Small Business Stock (QSBS) & Tax Savings for Business Owners

For business owners, Qualified Small Business Stock (QSBS) strategies can provide significant tax savings. When a business reaches a certain valuation, QSBS treatment allows owners to reduce or even eliminate capital gains taxes upon the sale of their business.

Additionally, self-directed IRAs—especially Roth IRAs—can be leveraged in the early stages of business planning to:

• Shelter business growth from excessive taxation

• Maximize post-sale gains with tax-free withdrawals

• Utilize depreciation strategies within SDIRAs to offset taxable income

Through alternative investment custody, business owners can manage their private equity stakes, real estate holdings, and other alternative assets inside tax-advantaged accounts, ensuring long-term financial efficiency.

Maximizing Wealth Through Tax-Efficient Investment Vehicles with Alternative Investment Custody

Attendees at the event learned how a well-structured tax strategy incorporating alternative investment custody solutions can significantly impact long-term financial success. The combination of trusts, self-directed custodians, and alternative investment custody provides a powerful framework for individuals and business owners to strategically plan their tax savings.

By integrating these tools, investors can protect their assets, optimize tax outcomes, and ensure a more secure financial future—making alternative investment custody a key component of long-term tax-efficient wealth-building strategies.

Real estate continues to be one of the primary alternative investment asset classes, attracting investors looking for stability, long-term appreciation, and portfolio diversification. The surge in real estate investment took off after the 2008 recession, when property prices remained low for an extended period. Many individual investors entered the real estate market during this time, launching their investment careers. This boom also led to a significant increase in the use of self-directed IRA (SDIRA) accounts through alternative asset custodians, as investors sought tax-advantaged ways to grow their wealth.

Between 2010 and 2020, real estate investments played a critical role in wealth-building strategies. Today, the asset class remains a hot topic, with investors not only viewing it as a diversification tool but also as a path to financial independence. Unlike traditional

Stocks and bonds, real estate provides tangible assets that generate income, appreciate over time, and offer direct control over investment decisions.

Real Estate as a Business Venture

Beyond just an investment, real estate often transforms into an entrepreneurial venture. Many investors operate their portfolios like small businesses, engaging in:

• Fix-and-flip projects

• Property renovations and improvements

• Managing rental properties and tenants

This hands-on approach allows investors to actively build wealth while leveraging their expertise to increase property value.

Real Estate Meetups and Collaborative Investing

Across the country, and particularly in the Bay Area, real estate investors frequently gather at real estate meetups—networking events where they discuss market trends, funding opportunities, and collaborative transactions. These gatherings foster partnerships among investors, brokers, and financial professionals, allowing for:

• Group funding for real estate deals

• Sponsorship of investment transactions

• Exchange of insights and strategies

At recent real estate meetups in the Bay Area, alternative asset custodians have been actively engaging with investors, brokers, and financial professionals. By promoting self-directed IRA custodial services, these custodians help individuals use alternative investment custody solutions to invest in real estate within tax-advantaged accounts. This approach enables investors to maximize their returns while maintaining compliance with IRS regulations.

The Role of Alternative Investment Custodians

For investors looking to purchase real estate within an SDIRA, alternative investment custodians provide the necessary framework to:

• Hold real estate investments inside retirement accounts

• Ensure compliance with IRS rules

• Facilitate transactions and reporting

With real estate remaining a top alternative investment, the role of custodians in streamlining the investment process continues to grow. Investors seeking long-term financial growth and diversification should consider leveraging alternative investment custody to enhance their real estate portfolios.

This year’s Schwab IMPACT conference brought together hundreds of wealth management professionals at the Moscone Center in San Francisco. Held shortly after the presidential elections, the event was abuzz with speculation about the potential market impacts of the political shift. Despite this backdrop, the agenda remained firmly focused on advisor-centric experiences, highlighting the latest trends and innovations in the wealth management industry.

Personalization and Portfolio Diversification Take Center Stage

A recurring theme throughout the conference was the growing importance of creating personalized, goals-based investment solutions for clients. Advisors are moving away from generic investment strategies to focus on tailored portfolios that align with clients' unique objectives, life stages, and risk tolerances.

Portfolio diversification was another hot topic, with discussions emphasizing the need to incorporate a variety of asset classes and strategies. From traditional investments to emerging alternatives, the focus was on building resilient portfolios to weather market volatility and capitalize on growth opportunities.

Technology and Investment Products Dominate the Exhibit Floor

The exhibitor breakdown at Schwab IMPACT 2024 reflected the industry’s priorities. Over 60% of exhibitors were technology and investment product providers, showcasing the tools and solutions driving the future of wealth management.
Here’s the full breakdown:

• Technology Providers: 188

• Mutual Funds: 94

• Alternative Investments: 60

• ETFs: 61

• Managed Accounts: 70

• Schwab Advisor Services Providers: 40

• RIAs: 26

• Retirement Services: 14

• Bank/Trust: 14

Technology providers stole the spotlight, offering insights into how digital tools are transforming client interactions, streamlining operations, and enhancing decision-making. The strong presence of investment product providers further underscored the industry’s reliance on innovation to meet evolving client demands.

Challenges in Alternative Investment Distribution

The alternative investments segment, represented by 60 exhibitors, was a major focus of discussions at Schwab IMPACT. Independent providers and rapidly growing marketplaces like Schwab’s One Source, iCapital, and CAIS highlighted the industry's evolution. However, distribution remains a persistent challenge for alternative investments.

For many funds, gaining visibility on custodial platforms and marketplaces comes at a steep cost, with significant listing fees. This has led to a paradox: while marketplaces have expanded access to alternative investments, they’ve also increased distribution costs. Funds now face the dual burden of paying fees to custodians and industry aggregators, adding pressure to their bottom lines.

The Role of Alternative Investment Custodians

Alternative investment custodians were absent from the conference. These custodians offer a streamlined distribution channel for private investment vehicles but still lack the scale and reach of traditional investment platforms. As the alternative investment space continues to grow, the role of custodians may expand, potentially reshaping the distribution landscape and addressing current inefficiencies.

Looking Ahead

Schwab IMPACT 2024 reinforced the wealth management industry’s commitment to innovation, personalization, and diversification. While technology and investment products continue to drive progress, challenges such as efficient distribution in the alternative investment market remain to be addressed.

As the industry evolves, advisors will need to navigate these complexities to deliver value to their clients. Schwab IMPACT 2024 offered a glimpse into the future, emphasizing the importance of adaptability and forward-thinking in shaping the next chapter of wealth manag

The recent acquisition of Alts Exchange (www.altexchange.com) by iCapital (icapital.com) marks another wave of consolidation in the alternative investment industry. Just a few months earlier, SEC (www.seic.com) acquired Altigo (www.altigo.com), a cloud platform for alternative investment inventory, e-subscriptions, and reporting.

Both Alts Exchange and Altigo were once agile, efficient companies connecting mid-sized fund managers and asset allocators. Now, they're part of large, multi-billion-dollar operations, which could shift the industry landscape.

Large firms tend to focus on institutional clients, pursuing big funds and high-value opportunities. As a result, smaller and mid-sized investment managers may find themselves underserved. Many small and mid-sized sponsors avoid large providers for several reasons:

1. Smaller firms prefer working with similar-sized service providers.

2. Smaller funds are more cost-conscious and unwilling to overpay for distribution.

3. Large asset allocators often overlook smaller investments due to the extensive due diligence, legal work, and documentation required.

In this changing environment, alternative investment custodians are stepping up. Their role is expanding to include asset performance reporting, tax document automation, and deeper integration with traditional asset management systems—all while maintaining a retail-oriented service model.

Alternative asset custodians play a key role in protecting investments from potential losses. They assist investment managers by handling subscription and core offering documents. By servicing individual investors and financial advisors, alternative investment custodians help small and mid-sized sponsors reach a wider investor audience.

The recent ADISA annual conference highlighted a significant shift in the alternative investment custody space. Over the years, the number of custodians participating in the industry has grown, with many becoming major sponsors of the event. These custodians are now playing a pivotal role in driving the development of the entire alternative investment sector.

Traditionally, alternative investment custodians primarily served individual investors, managing self-directed and other tax-advantaged plans. However, their role has evolved into more powerful entities that facilitate investment allocation and distribution on a larger scale.

At the ADISA conference, custodians showcased a broader focus beyond just recordkeeping for self-directed IRAs. They are positioning themselves as integrated players in the investment ecosystem, contributing to the manufacturing and distribution of alternative investments. Their services now include asset aggregation, portfolio reporting, and the promotion of alternative investment marketplaces.

A key indicator of the industry's maturity is the consolidation trend, exemplified by companies like Millennium Trust, now part of Inspire. Inspire has acquired several independent custodians, consolidating accounts and practices to become a major force in the space.

The presence of a full range of infrastructure players at ADISA—such as custodians, transfer agents, and trust companies—demonstrates a solid foundation for the industry's sustainable growth.

Another trend observed at this year’s conference is that large investment sponsors are increasingly listing their private investments on various custodial marketplaces. In the future, the distribution of these alternative investments is expected to become even more streamlined and efficient. Companies are actively working on aggregating alternative investment opportunities, including illiquid private funds. Expanding these marketplaces to accommodate smaller investment opportunities and penetrate deeper into the private market over the next 3 to 5 years could transform the industry further.

About ADISA (www.adisa.org)

The Alternative & Direct Investment Securities Association (ADISA) is the largest forum for professionals involved in the alternative and direct investment industry. Initially, it served as a hub where sponsors of private real estate investment vehicles could connect with broker-dealers and other institutional distributors of investment products.

Over the years, the range of investment products represented through ADISA has broadened significantly. Today, it includes sectors such as infrastructure, energy, and commodities, as well as more complex pooled investment vehicles like structured investment products and hedge funds.

One of the key attractions for sponsors and managers of non-publicly traded and illiquid investment opportunities is ADISA's focus on providing access to specialized distribution channels, which cater specifically to private placements and alternative investment products.

Alternative Investment Custodians at ADISA

Historically, alternative asset custodians within ADISA have played a pivotal role in servicing individual investors seeking exposure to private and illiquid alternatives, particularly in real estate. Sponsors of multi-tenant residential and commercial properties often looked to raise capital from high-net-worth investors, many of whom accessed these opportunities through alternative asset and self-directed custodians, allowing them to allocate portions of their portfolios to alternative investments.

After the 2008 recession, interest in real estate as an investment class surged. With expectations of significant appreciation in property values, thousands of individual investors began allocating their tax-advantaged investments, such as IRAs, into real estate. During this period, many investment sponsors shifted their focus toward the individual investor market.

The investment landscape has since experienced several waves of transformation throughout the 2010s and 2020s, further elevating the role of alternative asset custodians. These custodians have facilitated private capital inflows from individual (non-institutional) investors into various asset classes, including:

• Residential real estate and syndicates (2009-2014)

• Precious metals (2011-2016)

• Crowdfunding platforms (2012-2018)

• Crypto assets (2016-2022)

Registered Investment Advisors at ADISA

Since the mid-2010s, the alternative investment distribution model has gradually shifted from commission-based broker-dealer frameworks to fiduciary models. With growing interest in alternatives from individual investors and their financial advisors, sponsors of non-publicly traded investment opportunities have increasingly focused on working with private capital.

In response to the financial recession and heightened market uncertainty, registered investment advisors (RIAs) have placed greater emphasis on portfolio diversification. Alternative investments have become an essential component of managed portfolios, offering investors exposure to non-traditional asset classes that can hedge against volatility in public markets.

This year, the ADISA conference is expected to see a record number of participants from the financial advisor space, reflecting the increasing role of RIAs in the distribution of alternative investments.

Alternative Investment Custodian Inc (Alts Custodian)

Alternative Investment Custodian Inc (Alts Custodian) plays a pivotal role in assisting financial advisors in smoothly integrating private asset investment strategies into their clients' portfolios. As the demand for portfolio diversification grows, particularly among high-net-worth individuals, advisors are increasingly turning to alternative investments to provide exposure to non-publicly traded assets like real estate, private equity, and other illiquid investments.

Alts Custodian has fully integrated its processes into leading multi-custodial platforms, enabling financial advisors and Registered Investment Advisors (RIAs) to efficiently place client funds into alternative assets. This streamlined integration simplifies the administrative and compliance hurdles traditionally associated with alternative investments, allowing advisors to focus more on strategy and client outcomes.

By leveraging Alts Custodian's platform, advisors can offer their clients broader investment opportunities beyond public markets, enhancing portfolio resilience through diversification. This approach not only helps mitigate market volatility but also allows clients to access sectors that have historically been reserved for institutional investors.

Moreover, with increasing uncertainty in public markets and growing regulatory scrutiny on fiduciary standards, the ability to integrate alternative investments in a compliant and seamless manner is critical. Alts Custodian helps bridge this gap, ensuring that advisors can deliver sophisticated, diversified investment strategies while meeting regulatory obligations.