Types of collateral

The total IRA market is currently worth about $4.2 trillion. To date, only about 2% of the total IRA market is made of self-directed IRA’s, but that number is increasing in popularity as of late. It is estimated that about $94 billion is currently held in self-directed IRA accounts. There are several advantages of having a self-directed IRA account. Here are some of the benefits explained for your convenience.

Benefit #1. Protect Your Company’s Capital Gains

Using a self-directed IRA account to invest funds into your business carries much less of the risk of using another type of retirement such as a 401(k) or personal retirement savings. There are some rules to follow when investing in your own business, for example you can’t own over a 50% share of the company. You will receive the advantage of equity appreciating in your IRA account tax-free, allowing you to see returns on your investment much faster.

Benefit #2. All Contributions are Tax Deductible

The main draw of self-directed IRA accounts as opposed to other IRA accounts is that all contributions made to self-directed IRA accounts are tax deductible. For any given amount you contribute, based on your tax bracket percentage, your tax liability will decrease upon each contribution. This provides an incentive for individuals to make investments that yield high returns, such as obtaining an IRA non recourse loan to pursue a real estate investment in a property that will also yield income from rent.

Benefit #3. Receive Tax Benefits for Investing

Taking an IRA loan and using it to invest in middle-market leveraged loan funds can generate returns of up to 10% and sometimes even more. During times when investing in stocks and bonds on Wall Street does not seem promising, it is nice to have the ability to have more control over your investment options. Other high-yielding alternatives for investment include alternative private equities, real estate and private companies. Dividends from investments may allow you to reap the rewards of your retirement fund without “cashing in”.

Benefit #4. Using IRA Non Recourse Loans for Real Estate

IRA non recourse loans are required by the IRS when using a self-directed IRA account to make all real estate purchases. The IRA non recourse loan differs from other loans as it states that the account holder is not personally liable for repaying the loan. This bypasses types of collateral that a bank could seize such as your house. Instead, the property purchased with the loan is the sole collateral to be used for paying back the loan. To obtain a non-recourse real estate loan, a non-recourse lender will conduct a real estate appraisal to validate the value of the property and ensure that the IRA account holds at least 30% to 35% of the property’s purchase price invested into the self-directed IRA.

Self-directed IRA accounts appeal to individuals who wish to take the investing of their retirement savings into their own hands and create a truly diversified portfolio. If the control and independence associated with making your own decisions about how to invest your retirement savings appeals to you, consider setting up a self-directed IRA account.