Profit Faster From Tax Liens With a Self-directed IRA
ByI am not a financial planner or adviser. Far From it! I’m just an average investor,like you, but I know something about investing in tax liens. I also like to spend all of the money I make, and maybe a little more. But I like to spend some of that money on investments – tax liens for the most part.
OK, so I have a little problem that maybe you can relate to – I think that most Americans can. I like to spend all of my money. So when a tax lien gets redeemed instead of reinvesting that money, as I know that I should, I have a tendency to use it to pay for things. Not extravagant things, but things like paying off unexpected bills, college tuition for my kids, or to pay off some credit card debt.
But I know that I should be re-investing that money in more tax liens or using it to pay subsequent taxes on my existing liens. So a couple of years ago I decided to start a self-directed IRA and invest in tax liens with that money from my IRA. This way I would not really have control of the money, my IRA custodian would control it and I would not be able to spend my profit that came in from redeemed liens, it would go back into my self-directed IRA account to be used to purchase additional investments.
There are a lot of benefits to have a self-directed IRA. One of the benefits that I had immediately when I contributed to my IRA is that the money that I contributed was deducted from my taxable income and because of that I saw a bigger tax refund than I expected. Other benefits to using a self-directed IRA to invest are that the money in your IRA is protected from creditors and can be handed down to your descendants without being taxed.
Now I am not an expert on this stuff by any means so I have interviewed Mr. Edwin Kelly, one of the top executives of Equity Trust Company, a well known IRA custodian headquartered in Ohio. On July 7, 2010 Edwin did a a webinar on How to Profit Faster with Tax Lien Investing Using a Self-directed IRA, but due to some technical difficulties that we had with the recording, I wasn’t able to get the recording out to everyone until now.
Here’s a link to the recorded webinar with Edwin Kelly of Equity Trust Co.
http://taxlienlady.com/Self-Directed-IRA/Self-Directed-IRA.html
You’ll want to listen to this webinar right away because Edwin gave a special offer at the end of the webinar for a program from Equity Trust Company where you could get a lot of continuing education on the subject, personal mentoring with him and 2 free self-directed accounts. You can find out more about this This Accelerated Wealth Building Kit from Equity Trust Company at
7 Comments
August 26th, 2010 at 1:29 pm
I’m thrilled to find a resource for info – working with tax lien business is new to me, so thanks. I’ll check our the webinar.
October 27th, 2010 at 4:32 pm
When using a self-directed ira, how do I solve this issue of delayed payment from the ira custodian to the tax sale agency. How would I do this in the case of an online auction or physical auction where you have to pay right away? Is a self-directed ira LLC the answer?
October 27th, 2010 at 10:09 pm
Hi Arnie,
Yes I believe that a self-directed IRA LLC that gives you check book control is one answer to this problem, another is investing through a tax lien investing agent or fund. When you invest with a fund you are actually buying shares of the fund so you have just one big purchase from your self-directed IRA and that save you fees, since you are not paying for money to be transferred every time you purchase a lien and your only paying your annual fee based on one investment in the fund instead of many investments in individual liens.
This is the way that I like to invest in my self-directed IRA, it simplifies things and I don’t have to do any of the work. It’s definitely worth any fees that are paid to the fund.
January 10th, 2011 at 5:45 pm
I didn’t find that webinar particularly informative w/ respect to the challenges of investing in tax deeds and liens with an IRA.
Can you pass these questions on to Edwin and/or let me know your experiences re investing at auctions with IRA funds?
I have a desire to use a self directed (Roth) IRA to invest in tax liens
but I’m pretty paranoid that some activities will be considered to violate the federal IRA rules leading to huge (eg. greater then the amount of money in the IRA) penalties etc.
(Note: I am currently an Equity Trust customer w/o an LLC or other entity. I live in CA so such entities are very expensive to operate. ($800 min annual corp tax))
In particular, if I don’t use an agent or fund, then:
* there will be expenses incurred (eg. education, subscription services for lists/research, travel to auctions, etc…)
* expenses: I’d like for these to be deductible but I don’t see how that can be done w/o violating IRA rules. This is especially true if some of these costs can be attributed to non-IRA investment in tax deeds and liens in which case I expect that I would need to prorate which part of the costs are expensible – which sounds like ripe ground for accusations of comingling funds and disqualifying the IRA.
* expenses: even without deducting them I am concerned about the risk of running afoul of IRS rules re getting current benefits from retirement assets. I’d really like to understand what safe harbor activities there are w/ regard to these expenses.
* communication: Most counties are geared to communicate with a single party who owns a lien. If it is my IRA that owns it then the address listed is probably theirs. This seems like a recipe to lose correspondence, or have very slow correspondence, or have correspondence directed to the wrong IRA owner, or have the IRA custodian/administrator charge excessive fees for being a middle man in the correspondence.
* tax ids: Most counties require a federal tax payer id number and a W9 in order to function. If I invest with my IRA then I will need to use the custodian’s tax id. Many county systems will not be able to recognize that my IRA is distinct from someone else’s IRA with the same custodian.
* ACH: Many online auctions take payment via ACH. If I use an self directed IRA I don’t believe that I can make payments via ACH and instead can just have cashier checks drafted written to the county with the tax sale. I don’t see how to make that work for online auctions.
January 12th, 2011 at 2:26 pm
Hi Greg,
You have some great questions, but since they take up a lot of space I will attempt to answer them for you in another blog post and not in the comment section. I will write another post entitled “Questions about investing with an SDIRA.” I’ll answer as much of your questions as I can and for the rest you will have to speak with your agent at Equity Trust Company.
January 12th, 2011 at 4:14 pm
Thanks!
The post Joanne is referencing:
http://taxlieninvestingtips.com/blog/2011/01/12/questions-about-investing-with-a-sdra/
If I have any follow up comments I’ll comment on that post.
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