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Self Directed IRA Investment - Loans From IRA

IRA Loans

The IRS allows an IRA, Individual 401(k), HSA, or ESA to make loans without penalty, while keeping the tax benefits associated with that account type.

Self directed IRA lending gives you the ability to loan IRA money to non-disqualified persons (learn more). The IRA can receive principal and interest, just like a bank. The IRA holder chooses the borrower, principal amount, interest rate, length of the term, payment frequency and amount, and whether the note is secured by collateral or not.

Since the inception of IRAs, it has been possible to participate in IRA loans. What has not always been easy is finding a self directed IRA provider who was willing to service IRA loan investments.

The IRS requires an authorized IRA provider for all IRAs. Not all IRA providers allow IRA loans, but New Direction IRA provides outstanding administrative services for all types of IRA lending. You, the IRA holder, select the terms of the IRA loan and direct us to send money from your IRA to fund it. We make sure that the paperwork substantiates that the loan is done correctly through your self directed IRA, and therefore deserves the tax benefits associated with the account type.

Watch Our Free Video - How to Initiate an IRA Loan
IRA education

Private Money Lending with IRA Loans

You can become your own investment bank using IRA or 401k funds! Private lending can be a safe and potentially high-yielding strategy as well as a great diversification tool. This presentation discusses the IRS rules governing tax-advantaged benefits as well as common strategies for lending success. Learn important factors like partnership options, note security, and lending procedures. This presentation is perfect for those who are considering private money lending as an alternative retirement plan investment and want to learn the basics to an IRA loan.

Benefits of Self Directed IRA Loans

  • You have strategic control over the person/entity to whom you lend money as long as the person/entity is non-disqualified.
  • Lending is an asset that you have experience with and understand.
  • Your return on investment is generally pre-established.
  • You choose lending terms and collateral with which you are comfortable.
  • Loans can potentially yield a cash stream.

Self Directed IRA Loans - Important Things to know

  • The IRA loan must be a real economic transaction.
  • An IRA is its own financial and legal entity, and it is separate from your personal finances.
  • As a separate legal entity, your IRA has it's own name:
                New Direction IRA, Inc FBO (client name) IRA
  • The IRA is the lender, not the IRA holder. Therefore, all income goes back to the IRA.
  • All IRA loan documents must be in the name of the IRA, not your personal name.
  • For the documents associated with your IRA loan to be complete and legal, they need to be signed by New Direction IRA (as the administrator for that account).
  • The IRA can hire professional help to generate loan documents and/or loan servicing. All expenses for this process will be paid by the IRA.
ira loan

Loans from IRA

Step by Step Guide to Your IRA Loan

Step 1 – Open and Fund your IRA – It takes New Direction IRA 2 business days to open your account once your application is in the office.  Then you will fund the account with a rollover, transfer, and/or contribution.  This may take several weeks, so plan for that in your timetable.

Step 2 – Find a borrower and agree on loan terms.

Step 3 – Generate IRA loan documents and submit original documents with a Buy Direction Letter to New Direction IRA.

Step 4 - New Direction IRA sends money to the borrower.

Step 5 - Borrower sends payments to your IRA at New Direction IRA according to the terms of the loan. It is the IRA holder's responsibility to service the loan or hire someone (at the IRA's expense) to service the loan. IRA holders can check account information and track incoming payments through New Direction IRA's online portal.

Difference between private lending and private equity

  Private Lending Private Equity
Investee Non-disqualified business/entity or individual Non-disqualified business/entity
Asset Documentation Your IRA and the borrower sign an agreement, often called a note, that outlines the specifics of the loan. Equity may be represented in the form of shares of private stock or an ownership percentage.
How Your IRA
Makes Money
The amount of interest (and points if there are any) you charge is how your self directed IRA plan earns a profit. Earns money based upon the performance of the business, from the sale of your IRAs ownership, or through the sale of the entire business as a whole at a later date.

Learn about New Direction IRA Loan Fees

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