Monday, July 30, 2012

Outsourcing for Passive Income in a Roth SDIRA

The last post on this blog discussed ways to invest in real estate with a SDIRA. And as many people have sizeable accounts in their company-sponsored 401K accounts, which may be transferred to a tax-deferred SDIRA, real estate investments can be easily afforded.

However, real estate is often out of reach for people with a tax-free Roth IRA; because a person is limited to a maximum contribution of $5,000.00 per year, it takes a while for that Roth to build in value to the amount needed to acquire a piece of real estate. 

While the Roth SDIRA may not be able to buy an individual piece of real estate, it may be able to partake in a real estate investment trust (REIT) or real estate syndicate, along with other investors. One of the key advantages to these options is that the IRA holder can enjoy the benefits of the real estate investment in a passive fashion; he is effectively outsourcing the daily management duties to someone else. The drawback is that because the IRA is participating with others, its investment is not individually secured by a unique piece of real estate. As everyone knows, the value of real estate can go up or down, so it is important to be very sure of how the investment is secured – or not.

Another option for a Roth SDIRA to make money is by buying a business; some low-cost business startups involve multi-level marketing opportunities, or MLMs. In fact, none other than Robert Kiyosaki of “Rich Dad, Poor Dad” fame is a fan of MLM opportunities for business people. Some popular MLM companies include longstanding brands like Avon and Amway; newer entries in the field include the popular Beach Body brand, which includes fitness products advertised heavily on television such as P90X, Insanity and TurboFire workout programs.

And while these are all solid companies, they involve one primary problem for the SDIRA – the income from them must be passive (see prior post on “passive income” for definitions). And it can be difficult, if not impossible, to be passive and succeed in a MLM environment

One thing to consider is the prospect of teaming in a MLM business, in which the Roth SDIRA puts up the start-up money and another individual performs the day-to-day activities in the business. Once the Roth makes its initial money back, the business would share the profits.
If you would like to discuss this possibility, please send me a direct message at Please note that this article is for information purposes only, and is not an offer of a security or investment in any way, shape or form.

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