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Social impact investing is about earning more than just financial returns, it’s about generating a measurable, positive impact on your community or the causes you care about. It might mean financing affordable housing, supporting a local clean-energy initiative, or helping small businesses in your city grow.
Unlike traditional investing, where performance is measured only in profits and losses, social impact investing considers both financial return and social return. The goal isn’t charity, it’s alignment. You’re still seeking growth, but you’re also directing your capital toward projects that reflect your values.
A self-directed IRA (SDIRA) expands what’s possible with your retirement funds. While standard IRAs limit you to stocks, bonds, and mutual funds, an SDIRA allows you to invest in nearly any asset the IRS permits, including local ventures that make a difference close to home.
That flexibility opens the door to opportunities such as:
By using an SDIRA, you can fund projects that align with your values and your financial goals, all while maintaining the same tax advantages as a conventional IRA.
Before investing in any local project through your SDIRA, it’s essential to understand the IRS rules that keep your account compliant. The most important? Avoiding prohibited transactions.
The IRS restricts your IRA from doing business with certain “disqualified persons.” This includes you (the account holder), your spouse, parents, children, and certain entities you or your family control. In short, your SDIRA funds can’t directly or indirectly benefit you or your family before retirement.
Examples of prohibited transactions include:
When in doubt, consider asking a trusted advisor whether your investment structure follows IRS rules.
As with any investment, community-focused projects carry risks, and alternative assets can be less liquid than publicly traded ones. The best way to protect your retirement funds is to approach social impact investing with the same level of discipline you’d apply to any other strategy.
Common risks include:
Social impact investing feels personal, but it still requires professional-level due diligence. Every local project, no matter how promising, should be carefully evaluated before you invest.
Here’s a quick checklist to guide your process:
For a deep dive on conducting due diligence, download our free Private Equity Due Diligence Guide.
One of the biggest misconceptions about social impact investing is that doing good means sacrificing returns. In reality, many investors find that purpose and profit can go hand in hand, especially when investments are chosen carefully.
When assessing impact investments, consider two dimensions of success:
Some investors even track both using an “impact-adjusted return,” which weighs both the tangible and intangible benefits of an investment,
Social impact investing thrives on collaboration. Whether you’re looking to fund a local housing initiative, lend to small businesses, or invest in community energy projects, finding trustworthy partners is key.
Here are a few ways to identify and vet opportunities:
If you’re ready to align your retirement strategy with your community values, the first step is opening an SDIRA. The process is simple:
Entrust acts as your custodian and recordkeeper, handling the administrative side of your investment while you focus on choosing opportunities that matter to you. Whether you’re new to self-direction or exploring impact opportunities for the first time, we offer resources to help you along the way, including:
To get started, download our free Self-Directed IRA Basics Guide, or schedule a free consultation with one of our SDIRA experts.