Self Directed IRA. Lend money
I would like to lend money to friends. Can this be done in the Self Directed IRA? Also, would I need to specify if I loan money to one who wants to invest in Real Estate or can I make a loan without specifying the intent of the borrower?
Thanks Mary B.
Permalink Submitted by mk foss on Tue, 2009-06-02 23:56
First you would need a custodian of the self-directed IRA who would handle the account. Not all IRA custodians want to deal with unusual assets and those that do often charge higher fees.
Then, you would need to be certain that your lending activity wouldn’t constitute a prohibited transaction that could disqualify the IRA. Lending to friends instead of relatives sounds relatively safe, but the IRS/DOL have been far reaching in determining what is prohibited. If the loans are secured by real estate, you should be prepared to foreclose if necessary or have the IRA acquire the property upon default. This could lead to legal fees or other expenses for the IRA.
If a loan is not repaid, there is no loss deduction available.
In my experience, people who have made loans to friends have lost the funds and the friends.
Good luck if you decide to go through with this.