Self Directed IRA - what to invest in?

Question

I am currently in the process of rolling over $30k from my Roth IRA into a SDIRA with Equity Trust (custodian). I have never invested in Real Estate but I have been wanting to for years and feel that investing in a syndication with my SDIRA could be a good way to get my feet wet. Anything in particular I should look out for? How should I go about calculating things like UBIT? Would it be better to invest in a debt fund/ notes? Any/all insights greatly appreciated!

P.S - My day job is with a Real Estate Investment Management software provider and I talk to GPs all day so there is no shortage of deal exposure on my end... I'd like to leverage these relationships if possible.

Todd Dexheimer · Answer

Debt funds are great for a SDIRA since there are no tax benefits with them. A traditional equity syndication could also be a good option, but pay attention to the potential tax implication. A lot of people say to avoid the syndication because you can't utilize the depreciation losses, but the fact is, 90%+ of our investors can't take advantage of the depreciation loss due to them having a regular W2.

Chris Seveney · Answer

Since I am not an advisor I will not provide advice but tell you how I invest my SDIRA Money.

I use my taxable / W2 money to invest in real estate with tax benefits (depreciation etc).

I use my SDIRA money to invest in lending/debt funds since many of these do not have tax benefits nor do they have UDFI.

Example: $100k W2 income in a $250k asset lets say property is $200k depreciatable /27 = 7400/yr at 35% saving $2592

$100k debt fund in SDIRA at 8% interest is $8,000/ year - if it was taxable ordinary income  thats $2800/year

If you did this backwards and did SDIRA money in real estate and cash in debt fund you can see its over $5k a year

Part of real estate is the depreciation as it usually has lower cash flow - owning debt provides the cash flow (but does not have upside at exit)

Just my strategy and feel free to pick it apart.

Account Closed · Answer

@Christopher Kadletz Congrats on taking that first step to get started! The fact that you're already in the field bodes well for you - knowing what you're doing and being able to do due diligence is important! I'm happy to help if you want any other resources on the process of using your self-directed IRA.

Ashish Acharya · Answer

@Christopher Kadletz You're in a strong position to start investing through your Roth SDIRA, especially with direct access to GPs and deal flow. Investing in real estate syndications is possible, but if the deal uses leverage, the portion of income tied to that debt could trigger UBIT (Unrelated Business Income Tax), specifically from UDFI (Unrelated Debt-Financed Income). UBIT is taxed at trust rates and kicks in if over $1,000 is earned annually. Ask sponsors for a sample K-1 and leverage details, and consider deals that use blocker structures to avoid UBIT. Alternatively, debt funds or note investing are often cleaner for SDIRAs, as interest income typically avoids UBIT and provides steady returns—making them ideal for first-time real estate investors using retirement accounts. Avoid self-dealing, and use Form 990-T to estimate UBIT if needed.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Self Directed IRA - what to invest in?

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