If you’ve been exploring ways to diversify your retirement portfolio, you’ve probably come across tax liens and deeds as an option. They’re a popular choice among experienced Checkbook IRA investors for their potential high returns and relatively low barriers to entry. But like any alternative asset, they come with their own set of risks and rules you’ll want to understand before jumping in.

What Are Tax Liens and Deeds?

When a property owner doesn’t pay their property taxes, the local government can place a lien on the property or offer the deed at auction. Investors can then buy the lien or deed, essentially stepping into the government’s shoes to collect the owed taxes (plus interest) or potentially take ownership of the property.

These are handled at the county level, and every state has different rules. That’s why due diligence is absolutely critical.

Why Use a Checkbook IRA?

Using a Checkbook IRA gives you more control over the investment process. You can write checks directly from your IRA-owned LLC or Trust, which makes it easier to act quickly during auctions or deals with tight deadlines.

You’re also able to bypass some of the custodial delays that come with standard self-directed IRAs. That can be a big deal when you’re bidding at a county auction or managing follow-up legal steps.

Pros

• Potential for High Returns: Depending on the state, interest rates on tax lien certificates can be as high as 18–36%.
• Low Entry Cost: Some liens can be purchased for a few hundred dollars, making them accessible to smaller retirement accounts.
• Diversification: Great way to balance out a portfolio heavy in stocks or traditional real estate.
• Hands-On Control: You get to act fast and manage the process yourself, which can be an advantage in competitive markets.

Cons

• Legal Complexity: Every state and county has its own rules. Some require a judicial foreclosure process before you can take the property.
• Risk of Prohibited Transactions: Using personal funds or benefiting directly from the investment can trigger IRS penalties.
• Valuation and Reporting: You still need to report asset values to your IRA custodian annually, and that can get messy with non-traditional assets.

Key Takeaway

If you’re confident in your ability to research local laws, manage paperwork, and avoid prohibited transactions, tax liens and deeds can be a smart play for Checkbook IRA holders. Just don’t go in blind. Mistakes can be costly, and the IRS isn’t known for leniency.

A good starting point is to study the IRS guidelines on self-directed IRAs and talk to a CPA or attorney familiar with both tax lien investing and retirement accounts.