Interacting with your IRA is considered a prohibited transaction. So, unrelated, self directed IRA owners will attempt to enter into a reciprocal agreement to loan each others self directed IRA money so that the IRA owners can indirectly tap their funds for personal use.
This is a flawed design and approach. Even though the parties are not automatically on the disqualified list for prohibited transactions, the indirect benefit rule would come into play.
As a self directed IRA owner, you are not allowed to receive any benefit directly or indirectly from your IRA. The entering into a reciprocal arrangement with a third party which results in monies into your own pocket (i.e. the other person’s IRA funds) clearly conveys an indirect personal benefit to you.
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