Posts Tagged ‘self directed ira rules’

Private Lending with a Self-Directed IRA

Monday, November 13th, 2017

We’ve all heard of or taken out a loan in our lives, and it’s usually through a bank or another financial institution. What most IRA owners don’t know is that they are allowed to lend out the funds in their IRAs in the same way. The idea is that your funds can be loaned out and used to invest in real estate, small businesses, land, pretty much anything. Your IRA is acting as the financial institution.

Disqualified persons

Now, a regular IRA cannot loan out funds, but a self-directed IRA can. Since you’re loaning out through your self-directed IRA, the IRS rules will still apply when it comes to WHO you can loan the money to. Self-directed IRA funds can be loaned out to anyone who isn’t a disqualified person. That includes you, your spouse, your children, or parents. The same rules still exist for private lending that exists for self-directed IRAs.

Setting the terms

One of the main draws to private lending is that you’re allowed to predetermine the terms of the loan. First, you obviously can set the amount that you’re loaning to the person seeking the loan. You can also set the interest rate, the payment amount, and the length of the loan. You can choose if it’s a secured or non-secured loan. Securing the loan can be done through real estate, cars, pretty much anything that you choose. Note that the value of the item does not have to be equal to the loan amount.

No IRA is too small

Even if you have less than $20,000 in your IRA, or even just $5,000, the beauty of private lending is that you’re still one hundred percent allowed to loan out your funds. If you have a lower amount of money in your IRA, you’re also able to combine funds from your IRA and funds from another IRA to loan out.

Self-Directed IRA Rules and IRS Regulations

Monday, September 11th, 2017

If you’re new to the retirement world, you may be feeling overwhelmed by the amount of jargon and rules. If you familiarize yourself with the essential rules, you can avoid penalties, and reach your retirement goals.

Disqualified persons

One of the easier ways someone can violate self-directed IRA rules is by not understanding who exactly is a disqualified person. These people include the IRA owner’s parents, spouse, their children, and grandchildren. These people are excluded from benefitting from the IRA owner’s investments, for example, if the IRA owner’s adult child needs a home to rent, and the IRA owner has property in their IRA, their child cannot stay in that investment property.

Investment Types

The first thing you learn about self-directed IRA rules is that you, as the owner, are allowed to invest in pretty much anything you’d like. For the most part, that’s true, but there are limitations and exclusions to keep in mind. The IRS has a handful of basic assets that aren’t allowed:

  • Life insurance
  • Collectible items (like paintings, antiques)
  • Gems and coins

Borrowing and lending money

Borrowing and lending in a self-directed IRA gives the owner the ability to loan their IRA money to non-disqualified persons. How it works is that if pre-agreed to, an IRA can receive a certain amount of principal and interest, just like a bank would. What’s appealing is that the IRA holder chooses who to lend to, the interest rate, the principal amount, length of the loan, payment amount, and frequency, and whether the loan is secured by collateral or not.