The question isn’t at what age you want to retire, it’s at how much income you want to have when you decide to. If you’re simply relying on stocks, bonds, and mutual funds for your investment strategy, then you are missing what could be a pivotal vehicle for the growth of your retirement nest egg. Did you know that you can invest in real estate with a retirement account? With Trust Deeds at Ignite Funding, you can diversify your portfolio from the conventional market AND compound double-digit returns in a qualified account. Trust Deeds have longer hold periods, lower investment minimums, and offer capital preservation, making it an ideal investment to deploy for a long-term retirement strategy.
We created the guide below to help show you that Trust Deed investing in a retirement account is easier than you may think.
Step 1: Selecting a Custodian
Your first step is to find an IRA company that will custody alternative investments like real estate. You will want to search for a custodian that offers Self-Directed IRA (SDIRA) accounts. SDIRA custodians are approved by the IRS to custody cash and alternative investments, so they are regulated on the federal and state level and undergo examinations on an annual basis.
During your search you will find that each custodian is a bit different in the types of investments they will facilitate, the fees you will pay for their services, and the quality of service they will provide (speed of processing and accuracy). You can find our list of qualified custodians on our website, under “Invest in an IRA”. Since our inception in 2011, these custodians have proven a greater understanding of how these investments should be processed and are therefore able to provide our investors with a high level of service and compliance that we expect from our custodial partnerships.
Step 2: Open and Fund Your Account
Once you have chosen the SDIRA custodian and you have determined which type of account fits your retirement goals, it’s time to open the account. It is ideal if you already have cash available in another qualified account, whether it’s an old employers 401k or the IRA that you are investing in public markets. This allows you to not have to start completely from scratch building up your SDIRA to make the minimum investment set by Ignite Funding, which is $10,000 per Trust Deed investment. As long as it is a ‘like’ account it easy to perform a transfer or roll-over between accounts (i.e., a Traditional IRA to Traditional IRA, or Roth IRA to Roth IRA, etc.).
The processing time for a transfer or a roll-over can take up to one to two weeks, and this time varies by the company you are transferring from. Your custodian should notify you once your funds have been transferred and you are able to start investing through your SDIRA.
Step 3: Open Your Ignite Funding Account
You need to have a corresponding account with Ignite Funding to facilitate your Trust Deed investments for your IRA account. Ignite Funding is a non-depository credit institution, which means all principal and interest are processed directly to and from your SDIRA account. All accounts are free to open and maintain at Ignite Funding, so the investor retains the full 10% to 12% annualized return on their investment.
Step 4: Direct Your Custodian to Invest in Trust Deeds
Once both your Ignite Funding and your SDIRA accounts are open, you can now begin investing in Trust Deeds. Trust Deed investments are released on a weekly basis, giving you are variety of opportunities to choose from and help keep your portfolio diversified. For every Trust Deed you invest in, you will need to first sign Ignite Funding’s investment paperwork and then you will need to send your SDIRA custodian a Direction of Investment (DOI). This document directs your IRA custodian to send your designated SDIRA funds to Ignite Funding for the investment. Ignite Funding will assist you in preparing this document to help ensure the accuracy and timeliness of submission.
Depending on the SDIRA custodian, it can take up to one to two weeks for Ignite Funding to receive and process the check issued from your SDIRA account. Due to this potential time lapse, it is important to note that submitting your documents as soon as possible can help reduce the interest downtime between investments.
Step 5: Rinse and Repeat!
Once your investment is complete, you get to sit back and relax and watch the interest payments funnel into your SDIRA account tax-deferred or tax-free! Depending on the amount you are investing, you may be able to accumulate enough interest over time to reinvest on a new Trust Deed investment even before your investment pays-off. Otherwise, you will be notified by Ignite Funding when your investments pay-off and are ready to reinvest your principal and accumulated interest. All you need to do is execute the steps in Step 4. It is important to note that Ignite Funding will not be able to see the amount of cash you have available in your SDIRA account, so it would behoove you to check your account on a consistent basis to ensure you do not leave any funds in there that you want working for you.
Making your annual contribution to your SDIRA account is a great way to fill the gap if you do not have enough principal to make the minimum investment. Consistent contributions will also help you grow your account more quickly if you are initially starting off with a smaller amount of qualified funds to work with.
Step 6: Compound Interest into Your Golden Years (optional)
Many of our investors continue to take advantage of the fixed monthly interest payments to supplement their distributions and essentially extend the life of their retirement account well into their golden years. You can learn more about this strategy in our whitepaper “Understanding Compounding Interest” by clicking here.
Fee Schedules Explained
At Ignite Funding, it is free to open an account to invest; however, it is common for Self-Directed IRA accounts to have associated administrative/maintenance costs. As you do your research, you will notice that each custodian treats their fee schedule differently. Some will charge more for annual administration fees with fewer transactional fees, while others will charge more per transaction and have low annual administration fees.
It is important to note that the level of servicing provided for a Self-Directed IRA is significantly different than what you find with the traditional institutions, where you just press a button online to buy and sell. A custodian is constantly processing transactions such as interest, principle pay-offs, principle paydowns, rental income, expense payments, etc. The variety and the nature of alternative assets, as well as the compliance protocols custodians must follow makes for a much costlier process.
Are there different types of SDIRA accounts?
The number of different types of accounts offered varies across custodians, but at the very least you will be able to choose between a Traditional IRA and a ROTH IRA. The rules and regulations are the same for the accounts as far as their tax-deferred (i.e., Traditional, Solo 401k, SEP, SIMPLE) or tax-free (i.e., ROTH) status, contributions, distributions, rules, etc. What makes SDIRA accounts different is that you are able to direct investments into alternative assets like your real estate Trust Deed investments.
Are there any tax implications?
Ignite Funding and the company that holds your SDIRA account are two separate entities. Ignite Funding does not hold any of your principle or interest, it is all processed and sent directly to your SDIRA account. This means that if there are tax implications, they are related to what you have done directly with your SDIRA account. If you believe you need any tax information, you will need to contact the company your SDIRA account is held.