Self-Directed IRA Tax Liens
Generate passive income at a tax-deferred or tax-free rate within your self-directed retirement
Self-directed retirement plans enable you to invest in tax liens at a tax advantage and generate passive income that can support you well into your golden years.
Tax liens are a popular, low-cost investment that allows investors to assume responsibility for a tax lien from their local government and collect payments on interest.
Why Invest in Tax Liens in a Self-Directed IRA
- Passive Income: Passive Income: Interest earned from tax liens goes directly to your retirement account, offering predictable, passive income when the lien is paid
- Low-Cost Investment: Tax liens can be a relatively affordable alternative compared to purchasing real estate or private equity.
- Secured By Real Property: All tax liens are secured by real property as collateral.
- Diversification: Tax liens are alternative assets that aren’t subject to market volatility.
Earn Passive Income—Backed by Real Property
Interest from tax liens flows directly back into your retirement account, offering steady income without managing tenants or properties.
5-Star Rated Custodian
What Are Tax Liens?
A tax lien sale is a government-conducted auction of tax liens imposed on real estate due to unpaid property taxes. Along with tax deed sales, this method is one of two primary ways local authorities collect delinquent property taxes.
In a tax lien sale, the government offers the tax lien, which includes delinquent taxes, accrued interest, and sale-related costs, to prospective investors.
Once held exclusively in person, these auctions have increasingly moved online, especially in larger counties. This shift allows investors from various locations to participate, broadening the pool of potential buyers and increasing competitiveness.
Invest in Tax Liens with a Self-Directed IRA in 5 Easy Steps
Using your self-directed IRA (SDIRA) to invest in tax liens can be a smart way to diversify your retirement portfolio. Here’s how to get started.
Here’s how it works:
STEP 1
Open and Fund Your SDIRA
Work with Horizon Trust to open and fund your account.
STEP 2
Research Upcoming Tax Lien Auctions
Attend local county and municipality tax lien auctions.
STEP 4
Bid on the Lien Using Your SDIRA
Once you find a lien you want to invest in, direct your custodian to make the purchase using SDIRA funds. You can streamline this process by opening an IRA LLC.
Manage the Lien. Monitor payments until the lien is paid off. If payments are missed, foreclosure may be initiated (depending on state law)
STEP 3
Do Your Due Diligence
Review the property tied to the lien, check for any other debts or code violations, and understand the redemption period, or how long the property owner has to repay their debt.
Disclaimer
Horizon Trust Company is an independent passive Custodian and is not associated or affiliated with and does not recommend, promote or advise any specific investment, investment opportunity, investment sponsor, investment company or investment promoter or any agents, employees, representatives or other of such firms or entities. Investments are not FDIC Insured, offer no bank guarantee and may lose value.
Proven Success. Trusted Leadership. Real Impact.
At Horizon Trust, we make it simple to open and manage a Self-Directed IRA, so you can take control of your retirement on your terms. Founded by Greg Herlean, who has overseen more than $1.3 billion in real estate transactions, Horizon Trust was built by someone who understands what self-directed investors need: personalized service, fast transactions, and a custodian that stays out of your way.
As seen on
Learn More about Self-Directed IRA Tax Lien Investing
Self-Directed IRA Tax Lien Investing Rules
To stay compliant when investing in tax liens with your SDIRA, you must follow IRS and custodian rules that govern this type of investment. Here are a few to keep in mind:
- Investment must be made in the name of your SDIRA. All bids, purchases, and ownership documents must list your IRA (not your name) as the investor. This ensures assets remain tax-advantaged and follow IRS guidance.
- Only use SDIRA funds. You cannot use personal money or non-IRA funds to purchase a lien or cover related expenses if purchasing it as a retirement asset. Mixing funds is considered a prohibited transaction.
- All returns must flow back into the IRA. Any payments, interest earned, or foreclosure proceeds must go directly back into your SDIRA account. You cannot maintain custody of or otherwise use those funds.
Avoid transactions with disqualified persons. Any self-dealing or transaction with a disqualified person will result in penalties and potentially the loss of your account’s tax-advantaged status. You cannot invest in a lien on your own property or that of a disqualified person, such as a child, grandchild, or parent.
Tax Lien Title and Vesting Information
When purchasing tax liens with your self-directed IRA, all documents must be titled and appropriately recorded to maintain the tax-advantaged status of your account.
- Title formatting. All documents related to the tax lien purchase must show ownership in the name of your SDIRA. Check with your custodian to ensure you follow the property title formatting requirements.
- Official address for all documents. Contact your custodian to determine the exact address that should be listed as the official owner’s address for payments, communications, and filings.
- Income handling. Any payments, interest, or redemptions generated by the tax lien must be made payable to the official address used for all documents.
- Signature requirements. Only authorized custodian employees can sign the investment documents since the investment is legally held in your IRA.
Correct title and vesting are essential to avoid IRS penalties and preserve your investment’s tax-deferred or tax-free nature. Always double-check titling instructions with your custodian before participating in a tax lien auction or submitting paperwork.
How Does the Tax Lien Sale Process Work?
Once an investor purchases the lien, they must wait for the redemption period—a specified time frame during which the property owner can repay the lien amount, plus interest and fees. Each state has its own laws governing the redemption period, and during this time, the lien holder cannot pressure the property owner to pay or threaten foreclosure.
Any contact with the property owner that violates these rules can result in forfeiture of the lien certificate.
If the owner fails to pay by the end of the redemption period, the lien holder can initiate foreclosure. The lien holder typically pays the foreclosure costs upfront, though these may be recouped if the property owner redeems the lien before the foreclosure is finalized.
Upon successful foreclosure, the investor may either acquire title to the property, often via a quitclaim deed or participate in a tax deed sale, where they get the right to bid first.
State-Specific Considerations
In states like Illinois, for example, a “Tax Deed” can clear the title of any encumbrances via a court order, ensuring a clean transfer to the new owner. This provides additional security for investors concerned about title issues or prior claims.
State-by-State Tax Lien Investing
One of the most attractive aspects of tax lien investing is the potential for high returns, which can far exceed traditional investments. Different states offer varying maximum rates of return:
- Alabama: 12% annually
- Arizona: 16% annually
- Colorado: 9% annually
- Florida: 18% annually (guaranteed 5% return)
- Georgia: 20% annually
- Illinois: 36% annually (18% every six months)
- Indiana: 10% for first six months, additional 10% for next six months
- Iowa: 24% annually (2% per month)
- Kentucky: 12% annually
- Louisiana: 12% annually
- Maryland: 20% annually (varies by county)
- Massachusetts: 16% annually
- Mississippi: 18% annually
- Missouri: 10% annually
- Montana: 10% annually
- Nebraska: 14% annually
- Nevada: 12% annually
- New Jersey: 18% annually
- New York: 16% annually (varies by county)
- North Dakota: 9% annually
- Ohio: 18% annually
- Oklahoma: 8% annually
- Oregon: 16% annually
- Rhode Island: 16% annually
- South Carolina: 12% annually
- South Dakota: 12% annually
- Tennessee: 10% annually
- Texas: 25% within six months (50% annual return)
- Utah: 12% annually
- Vermont: 12% annually
- West Virginia: 12% annually
- Wisconsin: 12% annually
- Wyoming: 15% annually
Each state has unique regulations regarding tax lien investing, so be sure to verify the specific terms and conditions in the state where you’re investing.
Due Diligence is Key
As a client of Horizon Trust or any self-directed custodian, the investor is solely responsible for vetting each investment. Horizon Trust cannot offer protection against poor or improper investments.
Thorough due diligence on the property, the governing state rules, and the entities involved in the investment is critical.
Furthermore, ensure that the investment aligns with IRS regulations regarding Individual Retirement Accounts (IRAs) to avoid tax penalties or account disqualification.
Your Future, Backed by Our Track Record
Trusted by investors nationwide to take control of their retirement through Self-Directed IRAs.
Helping clients grow and protect wealth across real estate, crypto, and private investments.