Lending money to a relative from a self directed IRA w/o penalties

4 Replies

Hey investors, does anyone know how to take money from a self directed IRA to fund a deal for a relative without getting penalized. Like maybe creating a LLC investment fund with a company name? Thank you, Nick

@Nick Stango  

It all depends on who the relative is.

If they are a disqualified party, there just is no way to lend. Any direct or indirect transaction between the plan and a disqualified party is considered a prohibited self-dealing transaction and is catastrophic to your IRA and your pocket book.

Disqualified parties include:

  • The IRA account holder
  • Their spouse
  • Lineal antecedents - parents, grandparents, etc
  • Lineal descendants - children, grandchildren, etc
  • The spouse of a descendant
  • An entity like a business or trust where one or more of the above have controlling interest through equity or decision making power.

Family members not on the above list are not disqualified.  That does not mean, however, that you could do something like lend to your sister (OK) and then have her lend to your son (disqualified). 

Thank you for your response Brian, so if my brother wants to lend me money from his self directed ira to fund my REI deal, that would be OK? Thanks again, Nick

@Nick Stango  

There is no problem with such a transaction. You are not a disqualified party to your brother's IRA.

While transactions between siblings are not directly prohibited, you should always ensure that it is a market rate transaction and there are no preferred terms. That would be prohibited.

Jaime Raskulinecz

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