BiggerPockets

I have a potential partner and this is what we are thinking. Each of us roll traditional IRA's of the same amount of money (say $100K) into new SDIRA's. Each of us also set up new LLC's. My SDIRA lends his LLC $100K. His SDIRA lends my LLC $100K. The LLC's pay the SDIRA's 10% for the money. The LLC's invest in RE as each LLC owner sees fit.

Would we be breaking any SDIRA rules?

Thanks Christie. My IRA is almost all in cash now, so I am going in this direction.

Jon, you eloquently explained my concern. I wonder if one of the SDIRA trust companies would take a stand on this. My CPA needs to do more research, but I think he doesn't have much experience in SDIRA's.

I second what Jon said. Check with the custodian and see what they say. I'm not actually sure that you can just lend out 100k without it being secured by some type of asset. I'm actually doing the same thing with a buddy who rolled over an account and I'm using it like more of an equity line whereby I identify properties and his account lends on an individual basis.

I wonder if one of the SDIRA trust companies would take a stand on this.

Jon, they will not. They can not provide legal advice which is what you would be asking.

Jon Holdman laid it out correctly, as each individual transaction on it's own merit does not violate any IRS guidelines and they each are not prohibited transaction. However, the back and forth arrangement "could" be viewed by the IRS as an attempt to circumvent their rules and thus be ruled a prohibited transaction resulting in the full distribution of your IRA and the 10% penalty.

That all said, I know several individuals with IRA's who have done and continue to do what you propose, and they have been successfull to date. I believe the "safer" way of structuring your deal is to have the amounts not be equal, make sure both funds loans to the individual and not to each other's IRA (of course), and make sure each loan is paid back (of course). Showing that each IRA made substantial profits from the transactions is a good thing.

Disclaimer: I am not an attorney and this info provided is not to be construed as legal advice, nor do I or my company endorse the transaction specified above. These are my personal opinions ONLY.

One more key point not mentioned - make sure your partner is not your spouse, parent, or child.

Any transactions up and down the lineage and your spouse are disallowed.

I agree the trust companies (custodians) will give you information but will neither advise nor agree to anything borderline.

I would suggest that you keep the IRS from ever coming to look and thus no problems could exist.

Stay out of the grey in in the black.