My note fund is inside a regular brokerage and I keep wondering if moving a slice of it into an SDIRA would actually make sense

The framing you laid out is basically right, and most people skip past it too fast. Ordinary income in, ordinary income out. The wrapper does not launder the character, it just moves the timing. Where it starts to pencil on the note side is a high-yield fund running 10 to 11% on performing seconds or bridge paper with everything reinvested. The compounding on the deferred portion is real over a 15 to 20 year horizon even when the exit rate matches the entry rate. Run a rough comparison on $150k at 10% compounding with no shelter against the same thing inside a traditional IRA at a 37% bracket going in and a projected 24% bracket in retirement. The gap comes out meaningful, somewhere around $60k over 18 years, purely from the deferral and the assumed rate drop at distribution. Not life-changing, and not nothing either. The thing to nail down before moving anything is what your realistic bracket looks like at distribution age, well beyond today's bracket. If you have other income sources in retirement, Social Security, a pension, other IRA RMDs, you may not drop as far as you are hoping, which compresses that gap fast. The Roth question is worth reframing slightly. Instead of converting now, look at whether you can direct new contributions or a small rollover into a Roth SDIRA and let the note income compound tax free from a lower basis, leaving the big existing chunk unconverted at 37%. The conversion hit is what kills it at your bracket, and accumulating fresh dollars in a Roth while the existing fund stays where it is might thread the needle better.

Yeah you're not wrong that it's mostly a timing trade with ordinary income on both ends. The depreciation shelter is basically the whole reason the traditional SDIRA math looks clean for rentals, and note funds just don't have that lever. The thing that does change the calculus a bit is compounding on the gross interest for decades without annual tax drag, and at high enough yields over long enough periods that actually does move the needle, but you'd have to model your specific yield against your expected retirement bracket to know if it clears the bar. For me the question I'd want answered first is what bracket you realistically land in at distribution age, because if it's still 32 or 37 you've essentially deferred into the same problem.

The piece people skip over with note funds is that the deferral math only beats the taxable account if your bracket at distribution is meaningfully lower than today, and when you are already high now, the spread has to be substantial and last long enough to overcome losing the step-up in basis and the flexibility to harvest losses along the way. With a rental, depreciation does a lot of heavy lifting that a note fund never gives you, so you are right that the wrapper feels less worthwhile here. That said, if your state taxes income hard and you plan to retire somewhere that does not, the state-level arbitrage alone can shift the calculation pretty materially. A move from California to Nevada or Florida can represent a real percentage point swing on every dollar of deferred interest, and that compounds over a long runway even before you touch federal rates. For a note fund specifically, model the break-even year concretely: what year does deferred compounding actually overtake what you would net in a taxable account paying tax on interest annually, and does that year realistically fall before you need liquidity.

Compounding inside the wrapper is real, but it gets neutralized the moment distributions are taxed as ordinary income, so the math only breaks your way if the fund's reinvestment period is long enough that deferred growth outruns what you would have kept after annual tax drag outside the account. With a note fund throwing off 8 to 11 percent annually, that crossover point tends to land somewhere around the 15 to 18 year mark before the SDIRA version pulls meaningfully ahead, and that assumes your bracket at distribution is no worse than it is now. The Roth angle only works if you can stomach converting in a down-income year, which rules out doing it from where you are sitting today.

The one thing that actually moves the needle here is your expected bracket at distribution versus your bracket now. If you genuinely expect to be lower at 72 or 75, the deferral has real value even without the character change, but if the assets keep compounding the way they are supposed to, you may land in the same bracket or higher anyway. What is the size of the slice you are considering moving, and over what timeframe before you would need liquidity?

Parking ordinary income in a traditional SDIRA just delays the tax, it doesn't change it.