If you own a traditional IRA, you may be chafing under all the restrictions imposed upon what you can and cannot invest in. Switch to a self-directed IRA, and you completely change the situation and create a retirement account with virtually limitless investment opportunities.
What can you do with a Self-directed IRA?
You can buy and sell almost any type of investment using a self-directed IRA including real estate and real estate notes, of course. Investing with your IRA is particularly beneficial for a variety of reasons, mostly relating to the way taxes are charged on profits made by the account.
-Capital Gains Tax does not apply to profits made by the IRA
-All IRA earnings are tax-deferred until you reach 59 1/2 (the age of distributions).
- Earn interest on every dollar earned by your self-directed IRA the tax-deferred status of an IRA means all profits stay in the account, untaxed until they are withdrawn.
By creating an IRA trust and appointing this trust as an IRA beneficiary, it's even possible to pass money to your spouse and children tax-free after your death, or to put tax-free money aside for estate taxes. This is an excellent way of bypassing tax restrictions, particularly if one or more beneficiaries are a minor.
What about a Roth IRA?
Roth IRAs are in essence very similar, but have some extra advantages. While the range of investments you can make is the same as with a self-directed IRA, Roth IRAs are subject to slightly different tax types. The profits generated by a Roth IRA are tax-deferred, however contributions are not tax-deductible. However, all withdrawals from the account are tax-free once you reach 59 1/2. Additionally, there is no minimum distribution, so you are free to withdraw as much or as little money as you like once you reach distribution age.
Generate Passive Income with Real Estate Notes
A real estate note is a contract between a property buyer and the institution or individual who lends them the money to buy it. These notes can be bought and sold by institutions on the secondary mortgage market, and can be bought and sold by private investors too. The beauty of investing in notes with a self-directed or Roth IRA is that you create passive incomethat is, income which requires no further effort on the part of the investor once the investment is made. Once you buy a note using your IRA, youll get payments coming in month after monthall going into your account without being taxed. Another advantage of buying notes rather than property is that notes do not change in value if the real estate market takes a dive. Property prices change, but the total value of a real estate note does not.
Who can buy Notes?
Anyone can buy real estate notes, including private investors. There is excellent profit potential, with the possibility of buying notes for as little as 70% of face value. Private investors can also create notes by lending money to would-be property buyers who prefer not to borrow from financial institutions. Because the risk of such a loan is greater to an individual, the interest rate on them is higher than for a bank mortgage, meaning the profit potential is even greater.
