Investing in Private Credit Funds with a Self-Directed IRA (SDIRA)

Many investors use a Self-Directed IRA to build a more diverse retirement strategy by accessing private credit funds that fall outside traditional stocks and bonds. A Self-Directed IRA allows participation in alternative income-focused investments, including private lending opportunities that offer structured repayment terms and collateral-backed protection. These features make private credit an appealing option for individuals seeking steady income and long-term growth within a retirement account.

Why Private Credit Fits Well Within an SDIRA

1. Generates Reliable, Tax-Efficient Income Streams

Private Credit Mortgage REITs mostly make money from interest on loans.

• That interest shows up as a monthly or quarterly cash flow
• In a normal brokerage account, that income is taxed every year
• Inside a self-directed IRA, those taxes are deferred (Traditional) or eliminated (Roth)

Bottom line: This tax-deferred or tax-free status allows high-income investments to compound more effectively over time.

2. It’s “Hands-Off” Real Estate (Perfect For IRAs)

Self-directed IRAs can’t manage property directly—no fixing toilets, no negotiating leases.

A mortgage REIT:

• You’re lending money, not managing buildings
• No personal involvement (which keeps the IRS happy)
• No risk of accidentally breaking IRA rules

Bottom line: You get real estate exposure without doing anything that could disqualify your IRA.

3. Private Credit is Not Tied To Stock Market Mood Swings

Private mortgage REITs:

• Lend at fixed rates
• Focus on short-term loans
• Are backed by real property as collateral

That means returns depends on:

• Borrowers paying interest
• Property values staying intact

…and less on whether the stock market had a bad Tuesday.

Bottom line: it can smooth out volatility inside a long-term retirement account.

4. It Avoids A Common IRA Problem: UBIT Headaches

Some real estate investments inside IRAs create UBIT (Unrelated Business Income Tax)—a nasty surprise.

Well-structured mortgage REITs:

• Generate interest income, not operating income
• Typically avoid UBIT issues (structure matters here)

Bottom line: fewer IRS complications compared to owning property directly or investing in operating partnerships.

5. It Matches The IRA Mindset: Slow, Steady Compounding

IRAs aren’t meant for fast trading. They’re built for:

• Long holding periods
• Reinvested income
• Predictable growth

Mortgage REITs fit that rhythm:

• Income gets reinvested
• Compounds quietly over the years
• No pressure to time exists

Bottom line: boring consistency is a feature, not a bug, inside retirement accounts.

Eligibility Requirements for Private Credit Participation

Investing in private credit funds through a Self-Directed IRA requires opening a SDIRA account with a qualified custodian. Most private credit funds require participants to be accredited investors, based on income or net worth criteria. The custodian facilitates transfers, contributions, and investment processing, while the investor selects the private credit strategy that aligns with personal goals.

Costs, Timelines, and What Investors Should Expect

Private credit fund participation involves various expenses, including custodian fees, administrative costs, and fund management fees. Investors should fully understand the fee structures, expected timelines, and reporting intervals before initiating an investment.

Building Long-Term Value Through Private Credit with Red Tower Capital

Investors who would like to explore income-focused private credit opportunities through a Self-Directed IRA can review available options and learn more about structured, asset-backed strategies that support long-term retirement goals. To explore current offerings, visit Red Tower Capital.