Earning Passive Income Through a Self-Directed IRA
Published on August 25, 2022
Work, work, work; it’s the way we earn income to sustain ourselves. However, earned income isn’t the only way to support your lifestyle. Passive income—a sort of “set it and forget it” income stream—can be attained through the alternative assets that can be held in a self-directed IRA.
A peek at passive income
The way passive income functions is that you do the upfront work to get an income-producing entity launched that will return a continual income stream down the line. Many people have done this by setting up online courses people can download, writing a book for sale, creating portfolios of their creative work (paintings, photography, handiwork/crafts) to sell on an e-commerce platform or their own website, and renting out a prime parking space or a swimming pool they’re not using (yes, the swimming pool rental is a real thing!).
Another way to create long-term income: passive investing.
Passive investing through self-direction
Passive investing is a buy-and-hold strategy and is typically a long-term path for building retirement wealth.
A self-directed IRA provides numerous avenues for passive investing and for taxpayers to earn passive income over the long-term. Self-directed investing through alternative assets requires upfront research and due diligence on the part of the investor; after that, they are low maintenance because they typically don’t require active involvement on the account owner’s part once the investment is made. That said, as with any investment, they do require monitoring to ensure they are delivering positive ROI. The IRS also requires that you provide your self-directed IRA custodian, like Next Generation, an annual Fair-Market Value (FMV) of any assets held within your account.
Some examples of passive investments that can be held in a self-directed IRA include:
- Turnkey real estate investments such as funds, syndications and real estate investment trusts (REITs)
- Private equity
- Precious metals
- Royalties of various kinds
- Peer-to-peer private lending (unsecured or secured loans)
- Private notes
Getting started on passive investing with a self-directed IRA
If you already have a self-directed IRA, you’re well on your way to building a more diverse retirement portfolio—one that can include passive investments in a range of alternative assets.
For investors who are getting started on self-directing their retirement accounts, Next Generation is here to help. You can you can schedule a complimentary educational session to learn more about self-directed IRAs and get answers to your questions about the types of passive investments and alternative assets these plans allow. Alternatively, you can contact our team directly via email at NewAccounts@NextGenerationTrust.com or call 888.857.8058.Back to Blog