How to Make a Loan From Your Self-Directed IRA

Published on January 8, 2024

Among the many ways investors can diversify their retirement portfolios is through investments in alternative assets in a self-directed IRA. But did you know that individuals can also earn tax-advantaged retirement income by making a loan from a self-directed IRA?

As our CEO, Jaime Raskulinecz wrote in her Forbes Council article on this subject, investors may use their retirement accounts for various forms of private lending from their self-directed IRA—to other individuals or businesses—as we detail below.

Different types of loans from self-directed IRAs

Owners of self-directed IRAs can make unsecured loans (no collateral), secured loans (with collateral—an asset of value), and private mortgage notes (promissory notes secured by real estate assets). Here are some important points to keep in mind before your IRA lends money:

As “self-directed” implies, the loan terms are determined between the two parties (lender and borrower)—amount, length of time, payment schedule, and interest rate. And as with any self-directed investment (and lending money is indeed an investment in the borrower and future account growth), the account owner should do full due diligence on the borrower’s ability to repay the money. Plan ahead and plan well for what may happen if the borrower defaults on the loan!

Lending options with a self-directed IRA

Whether long-term or short-term, loans from a self-directed IRA may be made for many reasons and financial needs. Loans can be used for residential and commercial mortgages, personal loans to pay off debt, business financing, and more. For example:

As a full-service administrator and asset custodian of self-directed retirement plans, the team at Next Generation is here to answer your questions about the many types of investments allowed through self-directed, including unsecured and secured loans. You can schedule a complimentary educational session to find out more, or contact us at NewAccounts@NextGenerationTrust.com or (888) 857-8058.

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