As with a personal portfolio, your IRA portfolio may need adjustment. You may wish to direct your assets in a different direction as your retirement plan goals and objectives change. With a self-directed IRA, you have the ability to direct your assets any way you wish.
Real Estate vs Notes in a Self Directed IRA
There appears to be a debate among investors over holding real estate in an IRA versus having paper with real estate as the collateral, but not having ownership.
You can have both. Real Estate, as well as paper such as loans, notes and leases secured by real estate, is an acceptable vehicle for a self-directed retirement plan.
But what if circumstances change? Let’s say you currently own real estate in your self-directed IRA but are getting close to the age of having to begin to take required minimum distributions. Breaking up the actual real estate into distributions may not be something you want to do.
Converting A Real Estate IRA To Note Payments
One way to move the real estate into paper is to sell the real estate and create a note and mortgage, or in some states a note and deed of trust, and collect the payments back into your IRA from the borrower.
With real estate on the rise in certain markets, now may be a good time to consider selling your IRA real estate. You can turn rental payments into mortgage payments and put the proceeds right into your IRA.
The process is simple. You would sell the property in your IRA, create a promissory note and mortgage with your IRA as the mortgagor, and receive the payments from a homeowner instead of a tenant.
Planning for IRA Minimum Distribution Requirements
When it is time to start taking a minimum distribution, you can either sell the note or take the income off of the note as your distribution. In addition, your IRA will not pay the taxes and insurance. When the IRA held the Real Estate ownership, it was required to do so.
This scenario, in essence, creates dependable passive income on a tax-deferred or, in the case of a ROTH IRA, tax-free basis. It also eliminates tax and insurance payments and creates a stream of income that can still compound and work for you.
No matter what your age, this is a strategy to consider should you decide you don’t want to hold the physical real estate in your IRA but are comfortable holding the paper.
Looking for more great tips and ideas? Follow us online as we continue to engage and educate you on the true benefits of self-directing your IRA and your retirement portfolio. We at IRA Innovations believe our clients have the ability to take control of their financial future with investments they believe will help them accumulate the wealth they need for a comfortable retirement.