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Using Your IRA or Pension Plan to Invest in Trust Deeds

Posted by Matt Meyer on Tue, Mar 19, 2013

IRA Pension Plan Invest Trust Deeds

Investors looking to get the steady cash flow of interest-bearing investments like bonds or CDs, with returns more akin to buying stocks, should carefully consider buying trust deeds. These investments are excellent for IRAs since they offer steady long-term income which can help meet your investment needs whether you are retired or not.

Trust Deed Investing

Buying trust deeds turns you into a real estate lender. When someone wants to borrow money to buy a property, they turn to an investor like you for the trust deed or, in some states, a mortgage. You receive monthly payments of interest and principal (usually), and either have the loan paid off over time which can be for as little as one year and typically less than five years. These payments can either be reinvested into your IRA to grow tax-free or can be taken as withdrawals to meet your minimum withdrawal requirements.

Trust deeds have a number of features which make them safe. First off, they require buyers to put up a substantial sum, giving them motivation to make their loan payments so that they can keep the property. Because of this significant down payment, if the buyer does default, the lender ends up owning a property with significant equity. In addition, most trust deed lenders will only make loans to highly qualified people who have the means to repay their loan. These factors make trust deed investing a relatively safe activity with very healthy returns.

The Magic of Self-Direction

To engage in trust deed investing with your IRA funds, you simply need to set up a Self-Directed IRA with a custodian that will allow you to place your IRA funds in a trust deed investment.  There are several excellent companies to work with such as Pensco, Lincoln Trust (formerly Fiserv), Entrust and Equity Trust Company to name a few. Some require a minimum amount to be present in your IRA in order to invest in a vehicle like a trust deed investment. Please contact your plan representative as all IRAs have different rules and regulations. These IRA accounts let you specify how the funds in the account are to be invested, instead of limiting you to just a few vehicles. Once your money is with one of these self-directed accounts, you can then buy trust deeds and earn income on a tax-deferred basis.

If the trust deed maker defaults and you take the property back, you will also be covered because IRS regulations allow self-directed IRAs to own real estate. If this happens, the windfall profit that you could receive from the sale of any foreclosed property would also be tax-deferred. Because of this, using IRA funds to buy trust deeds works exceedingly well for both conservative investors looking for performing trust deeds, and for aggressive investors looking to buy distressed trust deeds as a part of a "loan-to-own" strategy to acquire real estate.  


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