September 5, 2025
Add some bricks and mortar to your retirement portfolio
You might think that saving for your retirement means parking your money in the same old mix of funds, stocks, and bonds. However, with a self-directed IRA real estate strategy, you can make property the star of your portfolio. One example includes real estate debt. The attraction for investors is simple: More diversity, more control, and the chance to grow your money on your own terms.
What Is a Self-Directed IRA?
A self-directed IRA (Individual Retirement Account) works much like a traditional one, but with a twist. While a standard IRA usually limits you to exchange-traded assets like stocks and bonds, a self-directed IRA can throw the door open to a broader range of investments. These include what are often called alternative investments; things like real estate, private equity, promissory notes, or even precious metals.
The structure is still the same: You contribute money, the account custodian holds your investments, and you receive tax advantages. The difference is that you get the flexibility to choose how to diversify beyond Wall Street.
What Are the Standard Types of IRA?
Before you decide how to structure a self-directed account, it’s worth knowing the main IRA types you can choose from.
Each type has its own rules for contributions, taxes, and withdrawals, which can shape the way your retirement plan grows. Most people start with Traditional or Roth IRAs, but there are also options built for business owners, employees of small companies, and anyone rolling over funds from a past job.
Traditional IRA
A traditional IRA is the most common retirement account. Contributions may be tax-deductible. Your investments will grow tax-deferred until you start making withdrawals in retirement. While most people use these accounts for stocks and bonds, you can also set one up as a self-directed IRA to branch into alternative investments like real estate debt.
Roth IRA
With a Roth IRA, you fund the account with after-tax dollars, but the payoff is big later on: All qualified withdrawals, including earnings, are tax-free. It’s a strong option for those expecting to be in a higher tax bracket when they retire. And when it’s self-directed, a Roth IRA can hold alternative assets, giving you both tax-free growth and portfolio diversification.
SEP IRA
A Simplified Employee Pension (SEP) IRA is built for self-employed professionals and small business owners. It allows much higher contribution limits than a Traditional or Roth IRA, which is ideal if you’re running your own business and want to save aggressively for retirement.
Simple IRA
A Savings Incentive Match Plan for Employees (SIMPLE) IRA is specifically for small businesses with fewer than 100 employees. Both the employer and employee can contribute, which makes it similar to a 401(k) but easier to manage.
Self-Employed 401(k)
It is also known as an Individual 401(k). The plan is for sole proprietors with no employees. It offers higher contribution limits than most IRAs because you are allowed to contribute as both the employer and the employee.
Rollover IRA
If you’ve switched jobs a few times, chances are you’ve collected more than one retirement account along the way. A Rollover IRA is a simple way to bring all those scattered savings under one roof. Technically, it isn’t its own account type. It’s just a Traditional or Roth IRA funded by moving money directly from an old employer-sponsored plan, like a 401(k) or 403(b).
Related article: Real Estate Syndication Explained for Everyday Investors
How a Self-Directed IRA for Real Estate Loans Works
A self-directed IRA isn’t a new type of account. It's simply a version of the IRAs you already know. Traditional, Roth, SEP, and SIMPLE can all be set up as self-directed, carrying the same tax rules and benefits as their standard counterparts.
What changes is the range of investments you can hold. With a self-directed IRA, you have the option to direct funds into real estate loans; sometimes called real estate debt. Instead of owning property, your IRA provides financing for real estate projects, and your returns come from the interest borrowers pay.
These types of investments allow you to diversify your retirement savings beyond the stock market while gaining exposure to real estate without the work of being a landlord.
Benefits of Self-Directed IRAs for Real Estate Debt
Choosing a self-directed IRA that invests in real estate loans can give your retirement savings some unique advantages. Instead of tying up capital in property ownership, your money supports short-term, secured loans backed by real estate.
The benefits go beyond convenience. Interest payments flow directly into your IRA, helping your balance grow on a tax-deferred or tax-free basis, depending on the IRA type you choose. Because these loans are typically shorter in duration, your capital cycles back into the account more quickly than with many traditional investments, keeping your funds active.
The most significant advantage is balance: Real estate debt tends to move differently than stocks and bonds, offering diversification without the headaches of property management. That means you can gain exposure to real estate while still keeping your portfolio flexible and retirement goals in focus.
Related Article: Debt vs. Equity Investing
What Are the Top Considerations?
Other forms of real estate investing, such as buying property, can be drawn-out; reviewing listings, negotiating, inspections, and closing often take months. And when it’s time to sell, you might have to settle for a lower price, or if the rental market weakens, cut rent and see your cash flow shrink.
Real estate debt investments come with built-in repayment schedules that typically provide more predictable outcomes than owning a rental property. For instance, even if property values dip or rental demand slows, loan repayments continue on schedule, keeping your capital working.
The bottom line: Regular IRAs keep you tied to Wall Street. Owning property comes with risks like vacancies, repairs, and uncertain resale value. A self-directed IRA focused on real estate debt offers diversification, steady income potential, and the security of investments backed by real property
How Are Self-Directed IRAs Taxed?
Self-directed IRAs follow the same tax guidelines as traditional retirement accounts. The difference is in what you decide to invest in. Here are two examples.
Traditional Self-Directed IRA
With a traditional self-directed IRA, your contributions may be tax-deductible. Over time, the money grows tax-deferred until retirement. Once you reach the required age, you can start taking distributions. Withdrawals are taxed as ordinary income. If you dip in early, before age 59½, you’ll usually owe income tax plus a 10% penalty.
Roth Self-Directed IRA
A Roth self-directed IRA works differently. You contribute after-tax dollars, but once the money is in the account, it grows tax-free.
Withdrawals of both contributions and earnings can also be tax-free, as long as two conditions are met: the account has been open for at least five years, and you’re 59 1⁄2 or older. Take money out sooner, and you’ll likely face taxes and penalties on the earnings. The exception is your contributions. Since you already paid taxes on that money, you can generally pull those out anytime without owing additional tax or penalties.
Remember, when choosing between the two, it is always best to talk to a tax professional for guidance.
Where Can I Open a Self-Directed IRA for Real Estate Debt?
If you’re interested in pairing the tax advantages of an IRA with the growth potential of real estate debt, some platforms make it simple to get started. Groundfloor, for example, offers self-directed IRAs built around short-term, property-backed loans, giving you a way to diversify your retirement savings without the headaches of managing tenants or buildings.
You can choose from the IRA types you already know, each with its own tax perks:
- Traditional IRA: Contribute earned income, potentially deduct it from your taxes, and let your investments grow tax-deferred until retirement.
- Roth IRA: Pay taxes upfront, then enjoy tax-free growth and tax-free withdrawals later in life.
- SEP IRA: A flexible option for freelancers and business owners who want to set aside more each year while keeping contributions tax-deductible.
- Simple IRA: Designed for small businesses, this plan allows both employer and employee contributions with tax-deferred growth.
Getting started takes just minutes: Open your account, choose the IRA type that fits your situation, and fund it with either new contributions or a transfer from an existing account. From there, you can begin selecting real estate loans that align with your strategy*.
Start building retirement income backed by real estate.
*Minimum opening balance of $25,000 required. Returns will vary by loan and are not guaranteed, and past performance is not a predictor of future results.
