Investing in tax liens with a self-directed IRA can help diversify your portfolio. Check out our blog to learn more.

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Tax liens, an often lesser-known and under-appreciated method of alternative income, are one of the many sound investments you can make with your IRA. Tax liens are one type of investment that can be owned inside of an IRA and are considered safe, lucrative, and generally small-dollar investments with a higher rate of interest.

To learn how you can leverage your self-directed IRA with a non-recourse loan to invest in real estate, get in touch with the non-recourse loan lenders at First Western Federal Savings Bank today.

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Investing in Tax Liens With Your Self-Directed IRA

Tax liens are a unique investment option that can yield high returns for savvy investors. Unlike traditional investments like stocks and bonds, tax liens are a way to purchase a lien on a property when the owner fails to pay their property taxes. By investing in tax liens with your self-directed IRA, you can take advantage of these lucrative opportunities while enjoying the tax benefits of your retirement account.

Here’s what you need to know about investing in tax liens with your self-directed IRA:

What are Tax Liens?

A tax lien is a claim against a property by the government or other taxing authority when the owner fails to pay their property taxes. Each state has its own laws regarding tax liens, but in general, a tax lien gives the holder the right to collect the unpaid property taxes, including any interest or penalties, from the property owner.

Investing in tax liens is attractive to many investors because they offer a low-risk way to earn high returns. In most cases, the tax lien holder is first in line to be paid when the property is sold. This means that even if the owner never pays their taxes, the investor can still make a profit by selling the lien to someone else who may be interested in buying the property.

How to Invest in Tax Liens with Your Self-Directed IRA

Investing in tax liens with your self-directed IRA is relatively easy. Here’s what you need to know:

1. Open a self-directed IRA account with a custodian that allows tax lien investments.

First Western Federal Savings Bank is an example of one such custodian.

2. Fund your account.

Contributions to your self-directed IRA can be made with direct rollovers, transfers, or contributions.

3. Identify tax lien auctions.

Each state holds its own tax lien auctions, usually once or twice a year. You can find information about these auctions through your local county or municipal government.

4. Perform due diligence.

Before investing in any tax liens, it’s essential to perform due diligence. This includes researching the property, determining its value, and understanding any liens or other encumbrances on the property.

5. Bid on tax liens.

At the auction, you can bid on tax liens. The highest bidder will become the tax lien holder and will have the right to collect the unpaid property taxes from the property owner.

6. Monitor the investment.

Once you have purchased a tax lien, it’s crucial to monitor the investment to ensure you receive payment when the property is sold or redeemed by the owner.

Tax Benefits

Investing in tax liens with your self-directed IRA offers tax benefits to investors. Because the investment is made with pre-tax dollars, any profits earned are tax-free if held in the IRA. This means that investors can reinvest their profits without worrying about being taxed until they are ready to withdraw from their IRA.

In addition, investing in tax liens may provide a way to diversify your investment portfolio and generate income to your IRA.

Conclusion

Investing in tax liens with your self-directed IRA can seem intimidating at first, but it can be a great way to diversify your portfolio and generate income to your retirement account while enjoying tax benefits. Our team at First Western Federal Savings Bank is here to help you navigate this unique investment option and make the most of your retirement funds. Contact us to learn more about our self-directed IRA options today.