How to Invest in Real Estate with a Self-Directed IRA

More investors are discovering that self-directed IRAs let you go beyond stocks and put retirement money into real estate. It is a smart way to build tax-deferred or tax-free retirement income while gaining exposure to long-term real estate appreciation. In this blog, we break down how it works, what the rules are, and why investing in a real estate private credit fund and mortgage REIT, such as RTC VI, with a self-directed IRA account is worth a closer look.

What Is a Self-Directed IRA and How Does It Work?

A self-directed IRA is a retirement account that gives you more freedom to choose what you invest in. While a traditional IRA or Roth IRA usually limits investors to stocks, bonds, and mutual funds, a self-directed IRA allows investors to use funds to invest in real estate, land, and mortgages.

The key distinction lies in control. With a self-directed IRA, you as the investor make investment decisions, while a custodian manages account administration, ensuring checkbook control and IRS compliance. These custodians typically do not offer investment advice but are responsible for processing paperwork and tracking holdings.

You can open a self-directed IRA in a few different ways depending on your situation:

Traditional IRA

A Traditional IRA is a retirement account where you can grow your money without paying taxes on it right away. You may be able to deduct your contributions from your taxable income, depending on your income level. The money you invest grows over time, and you only pay taxes when you take it out during retirement.

Roth IRA

A Roth IRA is funded with money you have already paid taxes on. The big benefit is that your investments grow tax-free, and you will not pay taxes when you withdraw the money in retirement, as long as the account is at least five years old and you are over 59½.

SEP IRA

A SEP IRA is designed for self-employed people or small business owners. It allows for higher contribution limits than a Traditional or Roth IRA. Contributions are tax-deductible, which can lower your taxable income, and the money grows tax-deferred until you withdraw it in retirement.

SIMPLE IRA

A SIMPLE IRA is a retirement plan for small businesses and their employees. Both the employee and employer can contribute to the account, and all contributions are tax-deductible. While the contribution limits are lower than some other plans, it is an easy and affordable option for small companies.

401(k)

A 401(k) is a retirement account offered by employers. Employees can set aside a portion of their paycheck, and employers often match some of the contributions. It comes in two types, Traditional (tax-deferred) and Roth (tax-free withdrawals), giving you flexibility in how your retirement savings are taxed.

These types of accounts make self-directed IRAs a popular choice for individuals who want to apply their expertise in real estate to diversify their retirement portfolios.

Why Invest in a Real Estate Mortgage REIT with Your IRA?

Real estate is a tangible asset with the potential to generate both passive income and long-term capital gains. Investing in real estate mortgage loans vs direct property ownership can be beneficial. Here is why:

• High Dividend Yields – Because mREITs are required to distribute 90% of their taxable income to shareholders, they tend to pay higher dividends than stocks or bonds.
• Real Estate Exposure Without the Work – Investors gain exposure to real estate without the hassle of property ownership or management.
• Diversification – mREITs do not move in lockstep with stocks or bonds, which can help spread risk.
• Inflation Protection– Some mREITs benefit when mortgage rates rise during inflationary periods.
• Tax Advantages – Mortgage REITs offer tax benefits such as 20% qualified business income deduction (QBID), no unrelated business taxable income (UBTI) for retirement accounts, simplified tax filing, and no withholding for foreign investors, maximizing net returns.
  
  

Investing in a mortgage REIT can deliver a combination of cash flow and appreciation that outpaces many traditional investments.

How to Open and Fund a Self-Directed IRA for Real Estate

Getting started is easier than it seems. Here is a simplified process to open and fund a self-directed IRA:

1. Choose a Custodian: Look for self-directed IRA custodians experienced with real estate or mortgage fund investments.
2. Open Your Account: Complete the necessary forms and verify eligibility.
3. Fund the Account: Transfer or rollover funds from an existing IRA or 401(k) or make new contributions to explore diverse investment options with various service providers.
4. Select an Investment Strategy: Direct purchase, note investing, mortgage fund, etc.
5. Execute Your Investment: Work with your custodian to choose the best investment option.

Why Use Red Tower Capital?

Red Tower Capital’s, RTC VI, a real estate private credit fund and mortgage REIT is a strong investment option.

Here’s why:

• Consistent Returns: RTC VI has delivered annual returns of 9%+ since its inception.
• Asset-Backed Security: Loans are collateralized by real estate.
• Quarterly Distributions: Enjoy regular income or reinvestment options.
• IRA-Compatible: RTC VI works with most major self-directed IRA custodians.
• Proven Track Record: RTC has been operating since 2011 with audited fund performance.

At Red Tower Capital, we help income-focused investors grow their retirement portfolios through professionally managed mortgage funds backed by real assets. Our fund, RTC VI, offers stable, consistent returns, and seamless integration with self-directed IRA accounts.

Call us at (415) 475-8800 or click on this link to learn more about RTC VI and how it can fit into your investment strategy.