IRA Lending

IRA Lending – Becoming a Private Lender with your IRA Funds.

Self-directed IRA lending gives you the ability to loan money just like a bank or private individual. With a self-directed note in your IRA you choose the borrower, principal amount, interest rate, the length of the term, payment frequency and amount, as well as if you would like the note to be secured or unsecured.

New Direction IRA can only administer a note as secured when we have an item of security in our possession. Security documents include: deeds of trust, quit claim deeds, vehicle titles, gold, or stock certificates. Notes with security agreements, or only references to items of security will be held as unsecured.

While unsecured loans are simpler to execute they are also a riskier type of loan. New Direction IRA encourages everyone to do due diligence before lending on any type of note. IRA lending Webinars are available on our website under learning resources.

Things to Remember When Lending from Your IRA

There is a Difference Between Private Lending and Private Equity

Private Lending
1. Money goes to business, individual, or other investor.
2. Agreement in place for money to be repaid.
3. Equity or property may be used to secure the promise to repay.

Private Equity
1. Money goes to start-up or established business.
2. Equity ownership in the business is given in exchange.  Repayment comes via earnings or ultimate sale of the ownership.
3. Equity is usually represented in the form of shares of private stock.

People Restrictions

Your IRA cannot lend money to:

  • Certain Family Members
  • Your Parents & Grandparents
  • You & Your Spouse
  • Your Children & Their Spouses
  • Your Grandchildren & Their Spouses
  • Certain Fiduciaries
  • Certain Business Partners

Remember: The note must be a real economic transaction.

Frequently Asked Questions:

Q: What is New Direction IRA’s role in the IRA lending money?
A:  What we do:
1. IRS reporting (Forms 5498 & 1099)
2. Receive loan payments & document loan security
3. Request all required documents to process loan

What we don’t do:
1. We do not provide investment advice
2. We do not sell or endorse investment products
3. We are not regulators, nor do we “approve” transactions
4. We do not service the loan, including payment tracking
5. We do not pursue legal action in case of default.

Q: How does the borrower make payments?
A: The payments need to be in the name of the IRA and sent to our office The IRA holder cannot cash the note payments, the checks must be  made payable to the IRA and sent into our office for deposit.

Q: What happens if the borrower doesn’t pay your IRA?
A: It is your duty to track payments to your IRA. If payment has stopped, contact the borrower. Seek outside help (legal counsel), if necessary.

Q:  If caught performing a prohibited transaction, what are the penalties/repercussions?
A: There are several things that can happen. The IRA could be distributed in full which would result in taxes and possibly early withdrawal penalties.  Additionally the participant may have to pay a 15% excise tax.

Have another question about private lending? click here

Your privacy is important to us, we never sell or share your information with anyone without your permission. Read our complete privacy policy for more details on how we protect your information.

For more information, call us toll-free at 1-877-742-1270.