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) and have the IRA 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 make loans from your IRA. What has not always been easy is finding an IRA provider who was willing to service this type of investment.
The IRS requires an authorized IRA provider for all IRAs. Not all IRA providers allow IRA loans, but New Direction IRA does. 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 asset is part of your IRA and, thus, deserves the tax benefits associated with the account type.
|Self Directed IRA educational videos - Loaning Money From Your IRA
Loaning Money From Your IRA
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.
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.
- The return on your money is 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's 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.
Step by Step Guide to make loans from an IRA
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 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.