Just thinking about this scenario. Feel free to shoot it down if necessary!

If I opened a self-directed IRA and used the IRA to pay off my mortgage on my personal home. And then continued paying payments to my IRA. The IRA could earn the interest tax free instead of the bank. Do you think this would work or do you see pit falls?

Thanks

That would be considered self dealing.

You have the right idea......

Nabers is a great SDIRA provider. They are small and not as expensive as the larger outfits. A plus with the larger outfits though is the amount of training sessions that hey provide.

Question for the SDIRAers who do this kind of stuff:

My understanding is an SDIRA falls under the same contribution limits as a Traditional or Roth IRA, which is $6000 per year at this time unless you're older and working with "catch up" rules that allow more.

So, even if you COULD transfer a mortgage with a friend, would the contribution limits prohibit you from transferring say a $100,000 mortgage into it?

I was looking into SDIRAs a few years ago, and that was the problem I hit: establishing enough seed capital to go after houses and mortgages. My understanding is you had to start out holding small-value paper option contracts inside the IRA and flip those for profit, not actual mortgages or houses until much later.

Example, start an SDIRA and fund it with $5000.

It is tougher to get the wheels turning with a SDIRA when you start out with such a small amount.

The two paths to jump start things is to purchase options or to network with a half a dozen others who also have SDIRAs. From that pool of like minded investors, if for some reason you all elected to discount properties that you were planning on selling to each other by a similar amount. Say I was going to sell a $50,000 investment for $5,000 to SID, and SID was going to sell a $63,000 place for $18,000 to Ken and Ken was selling a $90,000 place to Ray for $45,000 and Ray was going to sell Sid the original deal- if your ring was say six people around and everyone sold at a $45,000 discount - everyone one suffers a loss with the regular properties and everyone gained $45,000 in equity on Self directed accounts. Everyone nets out at Zero but everyone increases retirement funds.

The second technique is using what is called a back door IRA, to rapidly fund your Self directed accounts by shifting over non-self directed funds at specific times using your tax data.

Sid, my IRA funds an investment, or in other words, my IRA buys a mortgage.

I had cash, now I have a mortgage. This is not a contribution.

Sisco... first, thanks for recognizing me in spite of my name typo on the last post!

I get what you're saying about roll overs, but I was specifically asking about starting a new, fresh IRA, not a roll over. My understanding is someone who has no funds to roll over would have to start with no more than $6000 in Year 1, then grow that by either receiving interest, selling the mortgage, etc.

I talked to Brad about this once and he was the one (I'm pretty sure) who told me about flipping options inside the SDIRA. Seems like that would be the only way to really build up a balance sheet quickly since option contracts can be anywhere from $1 to $6000, but you could easily sell one for tens of thousands if you negotiated a good price on the property that the contract entitles the beneficiary to purchase.

Example: get a house valued at $300,000 under contract for $250,000 using an option for $500, paid out of the SDIRA. Sell the option contract for $25,000, a tax free profit of $24,500. Buyer of the contract gets a $300,000 house for $275,000. Everyone wins, except the Seller who contracted to sell the house for too cheap, but if it's a fire sale then maybe they'd do it.

Sid, there are a lot of ways to build up a massive sd ira account using options. For instance if you are buying a turnaround income property. First step is have the ira buy an option to purchase.

After you have massively increased property value buy increasing income and lowering expenses, you sell the ira option to purchase with Sid receiving all the investment $$, and SIDS ira all of the profits.