Written by: Emily Joswiak • June 28, 2021• Finance

Investing in a Structured Settlement With an IRA

Are you investing for the long run? Here, we’ll explain how structured settlements can help you set up retirement. Read on ahead to learn more.

Perhaps you remember learning about an experiment back in 100-level psychology called the “marshmallow test.” This exploration into delayed gratification presents children with a delicious marshmallow to eat. However, if they can refrain from enjoying their treat, they’ll receive a second marshmallow to go with their first. Some children, however, can’t resist, and immediately eat what’s in front of them, forgoing further deliciousness.

Now: do you have it in you to profit from people who would have failed the test?

Beneficiaries of structured settlements often find themselves dissatisfied with their payment schedules, which defer the money the settling party owes over several years. However, whether out of impatience or necessity, many people want or need their money in one lump sum. This represents an immediate windfall for payees and an investment opportunity for you. In this guide to investing in a structured settlement with an IRA, we’ll show how you can diversify for retirement in a very creative avenue. So if you’ve been looking at gold ira investing or another form of retirement investment package, then read on.

Why It’s Done

When the court orders a structured settlement, this protects both parties. It protects the payer, who could be unable to pay damages in a lump sum. It also protects the recipient. Deferred payments make them more likely to receive the full sum to which they’re entitled. Moreover, receiving a great deal of money at once can be overwhelming and lead to rash financial decisions that prevent recipients from using their funds responsibly.

How It Works

To obtain a lump sum instead of a series of annuities, the recipient would have to sell that settlement to a third party. In exchange for the rights to those annuities, that third party would make a single cash payment of lesser value than the sum of the annuities-usually anywhere between 60 and 90 cents on the dollar. The recipient would, in effect, get only one marshmallow instead of two, or perhaps 85 instead of 100, which is still a lot of marshmallows, as it were.

What You Need

To purchase a settlement, you need a base of money in your IRA to pay out in exchange for those guaranteed annuities through the years. That money would then grow tax-deferred in your account until retirement. However, because a traditional IRA is very strict about where it invests money, you’ll need to roll funds over to a self-directed IRA to take advantage of structured settlement payments. Self-directed IRAs go beyond the limits of what IRA custodians are willing to invest in-including real estate, precious metals, and cryptocurrencies, to name a few. Investing in a structured settlement with an IRA is another option you have-one that, perhaps more than any other avenue of investment, rewards patience in the long run.

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Last modified: June 30, 2021