IRA Loans – Three Ways to Make Money on Debt with Your IRA

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You cannot borrow money from your own IRA (as you can with a 401(k)), but just about any other person or business certainly can. Private lending with a self-directed IRA enables you to utilize the business model you know and trust while harnessing a significant degree of control over your retirement. As with almost any investment approach, there are a number of ways to invest in debt with your individual retirement plan.

Loan Origination

If you’re accustomed to issuing loans and collecting interest (or if you’re not and you’d like to give it a go), you can adopt this strategy with your tax-advantaged retirement dollars. You, the account holder, qualify your potential borrowers, make final decisions on interest rates and loan durations, and your IRA receives the principal and interest payments.

The key benefit of lending money with an IRA over lending with your non-retirement money is that all IRA earnings are completely tax-deferred. A self-directed retirement plan that holds alternative IRA investments still carries the same tax benefits as those that only hold stocks and mutual funds. As such, you will not have to pay annual income taxes on your earnings. Taxes may only come due upon distribution (withdrawal) from your account.

Fractional Debt

Online platforms that offer fractional investments in larger loans provide an opportunity for IRA holders to tap the debt market without engaging in full-blown originations. These platforms issue loans to individuals and businesses and then sell portions to other investors, allowing those investors to enjoy a share of the interest. Meanwhile, the platforms replenish their capital pools so that they may initiate new transactions.

Equity or Fund Investments

Private equity is another viable avenue for self-directed investors. If you’re inclined to invest in the lending business without putting your money toward debt instruments themselves, you may be able to acquire equity in a lending company with your IRA. You may also purchase shares of an investment fund with your account if a lending company offers such an investment vehicle.

Self-direction empowers you to choose a market segment (or segments) that you understand and follow the course of action that suits your needs. For more information about IRA loans or self-directed investing, please feel free to give us a call at 877-742-1270 or send us an e-mail at info@ndtco.com.

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