Alternative Asset Annuity Strategy

An attractive feature of an annuity is the predictable, periodic return.  For some, a less attractive feature over the past several years has been that their annuity has been tied to the stock market.  By using a self-directed IRA, investors can enjoy tax-deferred investment growth and achieve periodic returns similar to an annuity without having to worry about the stock market.

Both Traditional and Roth IRAs can purchase “alternative” or hard assets while maintaining the tax benefits associated with that account type.  Some alternative assets can provide consistent, periodic returns that mimic an annuity but are not driven by publicly traded securities.  Consider the three most common IRA alternative investments that can produce returns with the consistency of an annuity: rental real estate, private lending, and private equity.

An IRA (Traditional or Roth) is its own legal and financial entity, and it can own physical real estate. The IRA-owned property can be residential, commercial, or agricultural, and all of these types of real estate can produce rental income.  The rent goes into the IRA and can then be distributed to the account holder at their convenience.  Not only can this rental income produce income like an annuity but there are two additional benefits.  First, the IRA not only gets the rental returns but it still owns the asset itself, which may be appreciating even as it generates rent.  Second, because the account is controlled by the account holder, he or she can make adjustments to the investment.

An IRA can also be a lender.  These loans can be secured by collateral or unsecured.  The account holder finds the borrower, vets them, and negotiates the terms.  If the terms of repayment are such that the borrower periodically makes principal and/or interest payments to the IRA, the IRA holder could set up a distribution schedule that mirrors the payments.  In this way, the loan payments would act very much like annuity payments.

An IRA can also invest in a private company.  Usually called Private Equity, Private Placement, or Private Stock, the returns produced by the privately owned company or fund that you choose may be deposited in the IRA periodically.  And again, the IRA holder could set up consistent distributions.

In fact, the flexibility offered by self directed IRAs allows for almost any asset type to make periodic distributions.  And with an IRA, you, the account holder, are, largely, in control of when and how much income you choose to take.   If you like the idea of having your retirement savings pay you with regularity like an annuity but do not want to be tied to the stock market, feel free to reach out to New Direction Trust Company at or 877-742-1270.