The Initial Public Offering company will send communications about your IPO servicing teams. You should work with one of these teams to electronically register your IRA as an owner of the shares so you can trade them.
August 2023 - Update
Rocket Dollar received word from our upcoming stocks and bonds broker that we will be able to assist customers who have assets going public and moving them from "paper" private stock ownership to public securities ownership on an electronic brokerage. The expected release is at the end of Q4 or the start of Q1 2024. This method would assist clients who are having trouble with other brokerages.
Never involve your personal taxable brokerage by commingling IRA investments with taxable assets in the same account, and make sure the IPO team always titles all documents in the name of your Rocket Dollar IRA.
Do not rush to open an account to trade "going public" assets on just any brokerage. IPOs contract with specific brokerages to serve you, where you will be assigned an experienced IPO team.
Partner Bank Custody Step-by-Step Process:
- Every IPO (Initial Pubic Offering) has a small group of professionals they assign you at the IPO servicing firm. For a hypothetical example, you invest in the company SpaceX before it is a public company. The IPO in the public markets is quickly approaching, and SpaceX investor relations begins to send out communications to all IPO investors. Your IRA LLC and you will get a letter saying “you can onboard, service, and trade your IPO shares at Merrill Lynch, Goldman Sachs, and Fidelity with their contact listed below.” There is usually no flexibility past the brokers SpaceX has chosen because only those teams know and have permission to onboard specific IPO investors. Do not just call any brokerage, but follow the instructions in your letter or investor relations page of the company you invested in. These brokers are set by the company that is issuing stock and have been compensated in order to assist you with services before, during, and after the IPO.
- Once you see this letter you need to call one of the IPO brokerages and ask them to create a brokerage account in the name of the LLC. The IPO service teams should know how to open an LLC trading account, sometimes known as "an investment LLC." If the IPO service team does not immediately understand the structure of your IRA LLC, you can ask them "I need to open an investment LLC account that is tax-exempt. My investment LLC owns the shares." If further questioned about tax reporting, you can submit a W-9, and say "My IRA owns this investment LLC and all shares of SpaceX held with it. As an IRA investment, please assure me tax reporting will not be sent in for trades in this account."
- Then you will have an electronic portal so you can log in and trade on IPO day or after some lockup period they assigned you. While you might be trading the shares at Goldman Sachs, the shares are titled in the name of your LLC, which your Rocket Dollar account owns. All shares are still held inside of your IRA, and giving a W-9 and exempt tax reporting makes sure to reduce confusing information sent to the IRS.
- In the future, when you choose to sell the shares, you can bring the cash back to our partner bank, or ask us to roll the retirement cash over to another custodian.
AET Custody Step by Step Process
- Notify Rocket Dollar, who will connect you to the right contacts at AET
- AET will inform you on the date when they can no longer hold the asset
- AET will begin a transfer to Fidelity shortly before the deadline, along with an assignment of interest form.
- In the future, when you choose to sell the shares, you can roll them back to Rocket Dollar for another alternatives deal.
Rocket Dollar is working on options to make this IPO process even more seamless for the customer with AET and our partners.
What is an IPO?
IPO stands for Initial Public Offering. An IPO starts when a private company issues shares of stock to be sold to the public, which then means the company would no longer be privately owned, however, it is owned by investors who have a certain amount of the company’s stock that they acquired while it was in the private markets. One of the main reasons why a company chooses to do an IPO is to acquire a large amount of capital, and they do this through a series of steps:
- They obtain approval by writing something called an S-1 document to the SEC.
- For a company to go public and do an IPO it must first get the permission of the Securities and Exchange Commission (SEC) by writing an S-1 document which basically is a book about what the company is doing and why.
- Next, the company must get shareholder approval. Since the company is privately owned before an IPO the private investors will use the S-1 document to gather relative information. The investors will vote on whether the company goes public or not.
- The company chooses the exchange it will electronically trade on and determine its trading symbol. Determining the exchange is an important aspect for developing a successful IPO, this is mainly because of market perception, and how the public/market perceives each exchange. The company also selects a few brokerages that will service IPO investors. These organizations will be different from Rocket Dollar.
- Lastly, the next step is to raise money from the IPO through a process known as the roadshow. During this process, the company makes presentations to big investors to sell their stocks in large quantities at the IPO price so on the morning of the IPO, the big investors start selling/trading their shares at the public exchange, thus controlling the offering price in the IPO.
- The company is now public and trades on one of the electronically enabled major capital markets. It is now much more accessible through your traditional stocks and bonds brokerage. At this point, you could buy more shares on the open public markets, or if you were a private investor that purchased the shares through your Rocket Dollar account, you can sell your shares so someone else may acquire them on the public market, assuming you have completed the steps above.