Can Wife's IRA & my IRA lend privately on same deal?

8 Replies

Just want to make sure I understand this correctly....

My wife & I each have SDIRA's....I was thinking about contributing $38k & she contribute $24k on a deal.  We would be private lenders contributing on the same deal...my understanding is that this is prohibited??  

@Bryan C.

This is a sticky one, with room for interpretation in either direction.  We'd recommend against it.

So long as there are no transactions between your two IRA's and they simply joint venture into a transaction, there is no issue with that.

There can be no direct or indirect benefit between disqualified parties, however, and this falls into that indirect range.  It could be deemed that neither party could do the transaction on its own, and therefore was enabled to engage in the transaction due to the presence of disqualified party money.  That would be an indirect benefit.

I thought so too.  Just wanted to put it out there for other opinions.  Better to err on the side of caution

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Hey @Bryan C.

Great question for a poll, and excellent response @Brian Eastman

I wish more people would chime in here who had experience with this, but I will say I engage in similar transactions with my IRA & my wife's IRA. I have also witnessed many many people do the same. It is definitely sticky, but I have seen a lot of people JV their IRA with a disqualified person's IRA. The key here is to simply keep ownership separate and track the investment well- each IRA is making it's investment and profits are split accordingly. Of course, assuming you're ok with investing in the grey area.

Happy SDIRA investing!! 

Originally posted by @Jacob Blackett :

Hey @Bryan C.

Great question for a poll, and excellent response @Brian Eastman

I wish more people would chime in here who had experience with this, but I will say I engage in similar transactions with my IRA & my wife's IRA. I have also witnessed many many people do the same. It is definitely sticky, but I have seen a lot of people JV their IRA with a disqualified person's IRA. The key here is to simply keep ownership separate and track the investment well- each IRA is making it's investment and profits are split accordingly. Of course, assuming you're ok with investing in the grey area.

Happy SDIRA investing!! 

Jacob, the fact that you keep ownership percentage in the deal separate does not eliminate the fact that your IRA could not perform this investment on it's own and therefore using funds from a disqualified party to fund the missing portion can be looked at as providing indirect benefit.

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@Jacob Blackett

Your point is taken, but I could also tell you that I know a lot of folks who drive faster than the posted speed limit. It's only a bummer if you get caught. Mistakes with an IRA are much, much worse than speeding tickets.

The point @Dmitriy Fomichenko and I are making is twofold.  

1) speak with tax professionals before making critical decisions about investing with a self directed plan.  Associates and comments on a web forum are not tax advice and should not be taken as such.

2) It is possible to joint venture IRA accounts for a transaction such as ownership of real estate and not have the "indirect benefit" issue. With real estate, either party might be able to do the transaction on it's own. Perhaps not with cash, but in combination with a non-recourse mortgage. If either party "could" do the transaction stand alone, but chooses to joint venture, there is little risk of any real or perceived benefit created by access to the other parties funds. On a lending situation with just two lenders there is no such alternative funding that "could"come into play. You can either fund a note or you cannot. If you need access to the funds of a disqualified party in order for your IRA to participate - there is a benefit between the plan and that disqualified party, and therein lies the risk.

Another example would be a $1M loan with 10 investors each lending $100,000. If either IRA could chip in their $100,000, there is no conflict if both choose to invest in this larger deal, because the presence of the disqualified parties funds does not enable either IRA to participate in the deal.

There are a lot of ways to go out and create good returns for your IRA without taking unnecessary risk.

@Brian Eastman great explanation on the difference here between real estate and the note- makes perfect sense. 

Thank you very much for this insight!

Jake 

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