Private Lending in an IRA 

Turn your IRA into a lender

Pick your own borrower and set interest rates

Offer either a secured or unsecured note

What is Private Lending?

Private Lending essentially turns your self-directed IRA into a lender and can be approached in several ways. A few of those methods are, first, through secured (backed by collateral) or unsecured notes (not backed by collateral). Second, through deeds of trust where real estate is used as collateral or lastly through promissory notes that are secured by collateral from corporate stock, and more.

Some options for lending money with your self-directed IRA include:

  • Residential and commercial mortgages
  • Equity participation loans
  • Equipment financing
  • Auto loans
  • Bridging loans to businesses that are seeking debt finance
  • Microloans for small businesses
  • Personal loans
  • Non-performing notes
  • Debt-financed loans

How Does Private Lending Work? 

Lending through your self-directed IRA can have various benefits, but the main attraction is the ability to set the return that your IRA will see. Before loaning monies, you will establish the amount loaned, the percentage rate that your loan will expect in return, and all the terms and conditions are agreed to in advance* including performing due diligence. Private Lending provides your self-directed IRA with a stream of income through the interest and the principal through the loan.  

*All terms and conditions set in agreement with the borrower must be within reason, i.e., you should set interest rates at industry standard rates. 

Types of Private Lending 

Trust deed investing – Investing in short-term loans secured through real estate. 

Secured or unsecured notes – Secured means that there’s collateral in case of default, i.e., real estate, cars, or stocks. Unsecured means that there isn’t collateral tied to the loan, so the IRA doesn’t receive anything if there is a default.  

Residential and commercial mortgages – This IRA lending type can be of various sizes, from $10,000-$1,000,000 

Performing and nonperforming notes – A performing note is when the borrower pays as previously agreed to in the terms. Nonperforming notes are loans in default, so as a lender, you’re able to buy these notes at a considerable discount. 

Equity participation loans – This is a type of loan where your self-directed IRA acts as the lender and will come to an agreement with the borrower to reduce interest rates on an existing loan. In exchange, the IRA will receive a portion of the cash flow from a commercial real estate investment or a percentage from the appreciation of the stated property’s value. 

Business or personal loans – So long as the borrower is not a disqualified person, your self-directed IRA can loan to anyone and be used in developing a business or used as a loan from a bank. 

The Rules and Regulations 

The first rule to learn about private Lending through your IRA is that all business must be conducted through your IRA. Since your self-directed IRA is a separate entity from yourself, the money that’s lent must come from your IRA, and all profits made subsequently go back into your IRA.  

Whom you are loaning your IRA money to is the second of the must-know rules. A self-directed IRA cannot lend to a disqualified person. Doing so could lead to the IRS penalizing your retirement account.