What Can I Do With My Small IRA?

October 2, 2019

As the CEO of NuView Trust, I have the unique opportunity of speaking in front of scores of CPAs, attorneys, financial planners, real estate brokers and agents, as well as just plain investors, about the power and prohibitions of self-directed IRAs. One of the most common questions I get is, “I only have a small IRA, so what are my choices for self-direction and how could I get started?”

Because most investors’ frame of reference is the stock market, the full menu of self-directed IRA choices can be intimidating to the small investor. As a custodian, NuView never provides investment advice to our clients, yet we certainly can share the types of investments our clients make using relatively modest balances.

5 Self-Directed Choices that Don’t Require a Large Bankroll

• Lend your IRA – This can be a 90-day loan secured by automobile paper, a second mortgage on real property, or an unsecured note. Keep in mind, the borrower and the IRA holder determine the rates and terms of the loan, and all payments are made directly to the administrator for the benefit of the IRA.

• Buy an Option – The IRA can purchase an option to buy a parcel of real estate before a prescribed date for a fixed purchase price. Later, if the terms of the option permit and the value of the property is greater than the optioned purchase price, the option can be resold, and all the proceeds and profits are returned to the IRA, without tax ramifications.

• Tax Liens – Many clients like to buy tax liens at the county courthouse as these generally provide a higher level of safety than other types of investments. The liens may be removed and the interest paid in as little as ten days, or as long as six months or more. In rare instances, if the property taxes are not paid by the landowner, the tax lien holder (the IRA) may end up with title to the property.

• Partner with others – Partnering is a powerful tool that enables a small IRA holder to get a piece of a larger investment. This can be accomplished within an LLC, private stock, or simply with fractional ownership at titling. For example, an IRA can own an undivided 5% interest in investment property, and it would participate in all profits and expenses derived from the property at the 5% proportion.

• Leverage your IRA – Yes, you can indeed have your IRA borrow funds in certain situations. The loan must be non-recourse (secured only by the IRA-owned property) and must be paid by the IRA, thus you would normally only use this device if your IRA owned revenue-producing property. Be aware there also may be additional taxes within your IRA for gains on the leveraged portion of the investment.

We know that all these investment choices we administer can lead to overload, which is why it is so important that you surround yourself with good advisors to assist you in making your investment decisions. Whether you start with a $10,000 IRA or a $500,000 deferred retirement plan, as our clients can attest, there are opportunities for everyone.

By Glen Mather, NuView CEO