The IRS permits using retirement funds to make loans or purchase notes from third parties. By using a Self-Directed IRA to make loans or purchase notes from third parties, all interest payments received are tax deferred until a distribution is taken. In the case of a Self-Directed Roth IRA, all gains are tax-free. When engaging in private lending transaction (private loans) or purchasing notes, it is important to make note of the IRS prohibited transaction and disqualified person rules, which are found in IRC 4975.

For example, if you used a Self-Directed IRA to loan money to a friend, all interest received would flow back into your Self-Directed IRA tax-free. Whereas if you lent your friend money from personal funds (non-retirement funds), the interest received would be subject to federal and in most cases state income tax.

Making Private Loans or Buying Notes with a Self-Directed IRA without Checkbook Control

IRA Financial Trust Company offers Self-Directed IRA investors full IRA custodial services for traditional and alternative asset investments, such as real estate and private loans or notes. All IRA funds will be held with Capital One Bank, providing FDIC protection up to $250,000, before the client directs the funds for investment.

The first step to making private loans (secured or unsecured) or buying notes with a Self-Directed IRA is establishing an IRA account with IRA Financial Trust. Once your new Self-Directed IRA account has been established, IRA Financial Trust will assist you in rolling over any existing retirement funds tax-free to the new Self-Directed IRA account. You can also make IRA contributions directly to the Self-Directed IRA account. IRA Financial Trust will serve as your IRA custodian and Capital One Bank will be the bank where the rollover funds or IRA contributions are deposited. Once your funds have been transferred to the new Self-Directed IRA account with IRA Financial Trust, you will then direct IRA Financial Trust Company to make private notes or purchase notes.

IRA Financial Trust will walk you through the entire process of making secured or unsecured loans with a Self-Directed IRA. Below please find a checklist of the items that are generally required:

Making Unsecured Loan with a Self-Directed IRA

• Investment Authorization Form with funding instructions
• Original notarized note
• Note serving agreement, if applicable
• Documents certifying formation of entity if borrower is an entity
• Authorization/payment schedules

Making Secured Loans with a Self-Directed IRA

• Investment Authorization Form with funding instructions
• Original notarized note
• Note serving agreement, if applicable
• Documents certifying formation of entity if borrower is an entity
• Authorization/payment schedules

Making Loans with a Self-Directed IRA Secured by Real Estate

• Investment Authorization Form with funding instructions
• Original notarized note
• Note serving agreement, if applicable
• Documents certifying formation of entity if borrower is an entity
• Copy of deed of Trust/mortgage
• Copy of assignment of deed of Trust
• Copy of note endorsement
• Recorded deed of Trust
• Recorded assignment of deed or Trust
• Executed note endorsement
• Authorization/payment schedules

IRA Financial Trust, as IRA Custodian, will be required to sign all tax lien related transaction documents on behalf of your IRA.

Making private loans or buying notes with a Self-Directed IRA with Checkbook Control

IRA Financial Trust is proud to offer Checkbook IRA custodial services along with its full service IRA administration services all for one low price without any transaction or asset valuation fees. IRA Financial Trust Company is one of the few full-service IRA custodians who specialize in establishing Checkbook Control IRA LLC accounts.

IRA Financial Trust Company is a regulated, non-banking financial institution that is made up of retirement tax specialists committed to helping you make Self-Directed retirement investments quickly while minimizing annual fees. IRA Financial Trust Company was founded by tax attorneys who worked at some of the largest law form in the world, including White & Case LLP and Dewey and LeBoeuf LLP and have helped over 12,000 clients self-direct their retirement funds through their ownership in the IRA Financial Group LLC. Our experience working with Checkbook Control IRA LLC structures is unmatched in the industry.

The first step to making private loans or buying notes with a Self-Directed IRA is establishing an IRA account with IRA Financial Trust. Once your new Self-Directed IRA account has been established, IRA Financial Trust will assist you in rolling over any existing retirement funds tax-free to the new Self-Directed IRA account. You can also make IRA contributions directly to the Self-Directed IRA account. IRA Financial Trust will serve as your IRA custodian and Capital One Bank will be the bank where the rollover funds or IRA contributions are deposited. Once your funds have been transferred to the new Self-Directed IRA account with IRA Financial Trust, you will then direct IRA Financial Trust Company to purchase an interest is a newly established Limited Liability Company (“LLC”). The IRA will own the LLC and the LLC will be managed by the IRA holder or a third-party, as set forth in the LLC Operating Agreement. Once the IRA funds have been invested in the LLC by IRA Financial Trust, the manager of the LLC will be able to make private loans or buy notes directly by simply writing a check or sending a wire.

How to Do it

Below is a summary of how to make private loans (secured or unsecured) or buy notes are purchased with a Self-Directed IRA LLC Checkbook Control account with IRA Financial Trust Company:

• Establish your Self-Directed IRA account with IRA Financial Trust Company
• Work with a Self-Directed IRA facilitation company, such as IRA Financial Group, or a tax attorney to help establish your special purpose LLC, acquire the LLC Tax ID#, and draft the LLC Operating Agreement.
• Open a bank account for your LLC at any local bank of your choice
• Direct IRA Financial Trust Company, as custodian of your Self-Directed IRA Checkbook Control account to transfer the funds to the LLC account in return for a 100% interest in the LLC
• The manager of the IRA LLC can make private loans (secured or unsecured) with the Self-Directed IRA LLC – no need to involve IRA Financial Trust in the tax lien purchase process
• The loans should be made be in the name of the Self-Directed IRA LLC. Documents pertaining to the loan must be signed by the LLC manager
• All interest should be deposited directly in to the Self-Directed IRA LLC bank account. No IRA related investment checks should be deposited into your personal accounts.
• All income or gains from the investment flow through to the IRA tax-free!

Contact Us

Before using a Self-Directed IRA to make private loans (secured or unsecured) or buy notes, one should consult with their financial or tax advisor to make sure the investment is suitable for you.  If you have any questions, feel free to contact us anytime at 1-800-472-1043.