Self-Directed 401K Services Provided Conflict
I am looking for a feedback on the potential investment that I would like to make with my self-directed retirement account. I have a client, a partnership, that I provide services to. They are looking to buy a commercial property and need a loan for 6-12 months. I can lend them the money out of my account. Would arrangement like this be considered a prohibited transaction for self-directed IRA since I'm providing accounting services to the partnership. I do not see any conflict of interest but wondering what more experienced investors think.
This is one of those things that is "quite probably" safe, but could potentially be viewed as a self-dealing situation.
The partnership is not a disqualified party to your plan based on the information you have provided.
You already have an existing relationship with the partnership, so there is no assumption that you are personally gaining their accounting business as a result of loaning them money.
I would assume that you will provide accounting services associated with the partnership's investment in this commercial property, but there should not be any issue with that so long as there is no favor or benefit conferred in either direction due to the fact that your plan would be lending to them. The additional work you might receive as a result of them having a new project is really no different whether your plan is the lender or someone else is.
So, on the surface, there do not appear to be any issues. That said, you should be aware that the IRS language refers to any "direct or indirect benefit" between the plan and a disqualified party, and that is a pretty broad criteria. I'd not be concerned about the plan and you having separate relationships with the partnership, but any connection between the plan's investment and benefit to you, or the reverse, would be an issue.
It would be best to have a tax attorney or CPA who is a specialist in ERISA law take a look at the details of what you intend.
Thank you so much.
Brian has a great answer. I would just add one other issue to consider-- which is a concern if you are considered or have a fiduciary relationship with the partnership or individuals you could be considered a disqualified person.
Originally posted by @Carl Fischer:
Brian has a great answer. I would just add one other issue to consider-- which is a concern if you are considered or have a fiduciary relationship with the partnership or individuals you could be considered a disqualified person.
Carl, is this addressed in the internal revenue code? Fiduciary relationship is, or may be a disqualified party?
it is discussed in IRS code. I believe section 4975 but it is late Saturday night.
While this transaction may appear aggressive, as long as you are not a partner in the partnership, a promissory note investment from a self-directed retirement account whether an IRA or a solo 401k plan is generally not prohibited.
Thank you everyone. I will read the IRS code once again.
Would the new banking laws prohibit me from lending the money to him personally rather than through the retirement account?
If not, then should I have an attorney draft the Note & Deed of Trust or the title company?