Self-directed IRAs: A Great Way To Retire via Real Estate Investing

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As my husband and I began focusing on finding private money lenders to fund our rental property acquisitions and speaking with these potential lenders about the benefits of using IRA funds, it became evident that this was something we’d want to do personally as part of our own retirement planning. Not only does it allow us to make a solid return on our investment to grow our retirement account, but it also gives us an opportunity to create mutually beneficial partnerships with other investors. I’m not a tax professional or an accountant, but I thought it would be helpful to give food for thought for others who may benefit.

What is a self-directed IRA?

Self-directed IRAs are very similar to the standard IRAs which you are likely familiar with. The key difference with a self-directed IRA retirement account is that you have more flexibility in terms of your investment options. Instead of being limited to mutual funds, stocks, bonds, and CDs, you also have the ability to invest in real estate, notes, tax lien certificates, private placements, and more. I personally find this to be a very attractive option because it allows me to invest in things I have more knowledge, experience, and influence with.

There are a number options available to you and you’ll want to do your research and consult with your financial professionals to determine what’s best for you. Here’s a quick rundown:

Traditional Self-Directed IRA:

With the traditional IRA, you may be able to receive tax breaks today and your contributions will grow tax-deferred. When you take withdrawals at retirement, you will be taxed on them.

Roth Self-Directed IRA:

With the Roth, you won’t get tax breaks today, but your contributions will grow tax-deferred and can be taken out completely tax-free.

Self-directed IRA LLC:
These are also known as “checkbook” IRAs because you can write a check right there on the spot for your investments. Depending on the kind of investments you’re doing, being able to move within seconds instead of a few days can be incredibly useful.

I personally chose to take my 401(K) from a previous employer and convert it to a self-directed Roth IRA to invest in real estate and potentially tax lien certificates in the future. Every individual’s situation is different so you will really want to see what works best for your financial scenario. One of the best parts of having this self-directed IRA account is the fact that I have a much better level of confidence in my investments because I’m able to choose exactly who I want to lend to and have a clear view of that investor’s experience.

There are unlimited lending options available to you. There are so many investors who have outstanding investment opportunities, but are simply in need of private money lenders because its increasingly difficult to get bank financing. Networking with other investors nationally online (for example, right here on BiggerPockets) and locally offline (via meetups, REIA meetings, etc) will provide you with great lending opportunities. There are also a number of custodians you can work with for your self-directed IRA. I work with Equity Trust because they were highly recommended to me, but there are plenty of other options as well. A quick search on “self-directed IRA” will yield you with several options to research!

Would love to hear about others’ experiences with using self-directed IRAs or 401(k)s to build wealth and fund retirement years!

About Author

Shae Bynes is a real estate investor in Sunny South Florida. On her blog, GoodFaithInvesting.com, she provides helpful tips and an inside look at her real estate investing adventures -- obstacles, failures, & successes!

6 Comments

  1. Pingback: There is a MASS MOVEMENT going on RIGHT NOW! Save your retirement from certain death. « J.R. Schoonover

  2. Dmitriy Fomichenko

    Shae, I like your simple explanation, anyone can understand the concept the way you explain it.

    What I didn’t see mentioned in your article is self-directed Solo 401k. This is very powerful investment vehicle, which is very little known. Not everyone would qualify for it, you need to be either self-employed or own a small business without full time employees besides the business owner and his or her spouse.

    One of the attractive features of the Solo 401k is that it allows account holder to make large contributions, up to $59,000 per year for 2015. This also makes it great tax shelter.

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