The Hidden Secondary Annuity Market – Structured Settlements in a Self-Directed IRA

Do you know anyone who has a stream of payments coming from a reliable source but who needs a lump sum now? These can be lottery payments, assignable pensions, judgments and settlements from lawsuits, or nearly any other kind of stream of income? You can purchase the rights to the future payments at a discount using your Self-Directed IRA, 401(k) or other retirement account.

The advantages of this strategy inside a Self-Directed IRA are clear: The seller gets the cash he or she needs now, while you as the buyer can obtain above-market rates of return, effectively creating your very own annuity. In fact, the structured settlement market is sometimes called the “secondary annuity” market by industry insiders.  The industry is very old, but got a shot in the arm in 2002 with the passage of 26 USC Section 5891, which allows recipients of structured settlements to sell their expected future payment stream in exchange for a single lump sum if the buyer gets a court order under state law.

Here’s how it works:

  • Open a self-directed account with American IRA, LLC, and fund it with any combination of new contributions or rollovers from existing retirement accounts you choose (subject to annual IRA, 401(k), SEP or other statutory contribution limits).
  • You or a broker working on your behalf identify someone who has won a lottery or an insurance settlement resulting in a stream of expected future payments, who, for whatever reason, wants a lump sum.
  • You make a lump sum offer. If the seller agrees to your offer, you obtain a court order assigning the future stream of payments to your Self-Directed IRA. IMPORTANT: Don’t have the
  • Direct American IRA, LLC to transfer funds to escrow or to the seller or broker, in accordance with the terms of your agreement.

These structured settlements are normally relatively conservative income investments, but have recently been outperforming most off-the-shelf annuities direct from the insurance carriers, and handily outstripping the rates available from CDs, savings bonds and treasuries.

According to one prominent broker, the annual rate of return on structured settlement buyouts has typically ranged from 4 percent to 8 percent. In contrast, 30-year fixed mortgages at this writing were selling for 4.09 percent and 5-year CDs were generating 1.86 percent according to The 10-year treasury is yielding 2.5 percent and the 30-year treasury is yielding 3.11 percent according to Bloomberg.

Terms can be between one year to up to 30 years and longer. Payment schedules can be annual, monthly or quarterly, or they may be balloon payments set in the future.

You can normally sell your structured settlement at a discount to net present value, just like you bought it.


There is an element of risk with these investments: While most of these settlements are, in practice, paid by established insurance companies with AM Best ratings of A or better, there is no government guarantee. If the insurer runs into liquidity problems, your payments may not come as expected.

In one case, a state government delayed scheduled payments to lottery winners because of a cash crunch, so there is some uncertainty with state payments as well. If you want unquestioned credit quality, your best bet is probably with U.S. Treasuries. However, you will likely earn a much lower interest rate in your Self-Directed IRA in the process.

American IRA is a leading provider of Self-Directed IRA administration services. Our offices are in Asheville and Charlotte, North Carolina, but we work with clients from across the country.

For a no-obligation consultation on structured settlements within your IRA, call us at 866-7500-IRA(472), or visit our web site at

We look forward to working with you.