Come Saturday, 20 of the world’s finest thoroughbreds will descend on the hallowed grounds of Churchill Downs in Louisville, Kentucky for a 1.25-mile sprint to glory and a $2 million champion’s purse. The winner may then set his sights on joining the likes of Sir Barton (1919), Secretariat (1973), and American Pharoah (2015 – champion horses need spell-check, too!) as Triple Crown champions by later claiming victories at Preakness Stakes and Belmont Stakes.
Saturday’s event puts the Bluegrass State in the national spotlight, but Kentucky boasts a multi-billion dollar equine industry beyond the Derby. Common segments of the horse business like racing, performance, and recreation remain prevalent. Other sectors like breeding, training, riding, and handling serve the needs of specialized animals and their owners.
So why does this matter to you, the self-directed retirement investor? Even as assets like real estate and private lending become more popular, many still don’t realize that more obscure alternative investment options can be owned by individual retirement plans. In the eyes of the IRS, a horse won’t typically represent a collectible (and therefore prohibited) commodity. Instead, ownership presents opportunities for genuine economic success. As such, your IRA or 401(k) may invest in horses like those running in the Kentucky Derby.
A pony can run anywhere from $1,000.00 to $10,000.00, so your start-up costs may be relatively low. Aside from consistent expenses like food and housing, others may arise depending on the nature of your investment (training, grooming, etc.). As the de facto owner of the horse and any inherent components, your retirement plan—not you personally—must cover these expenses. In turn, any income generated by your investment will return to your plan and bear the applicable tax advantages.
Beyond this distinction, the processes for buying a horse with your personal funds and your retirement account are comparable. If you’ve invested in horses before, self-directed retirement investing allows you to conduct business in a very similar manner. The only real difference will be your source of capital. So, if you’re interested in taking Derby Day beyond decorative hats and mint juleps, feel free to contact New Direction IRA for more information.
Kentucky, from our Louisville to yours, here’s to another classic Derby!