Can my SDIRA lend to my husband's SDIRA?

Question

Hi BP folks,

So I've googled until I can google no more! I cannot find an answer to this question:

Can my husband's IRA buy a property with a down payment, where the rest of the purchase price is covered by a private money loan out of my IRA? I get it, I get it...a person's IRA cannot conduct business with their spouse. But what about spouse's IRA? Why would I want to do this particular arrangement, you ask, instead of just pooling the money to purchase outright, which is perfectly allowable?

Because my hubby and I have a significant age gap (I'm younger), and he never saved for retirement until he met me. My IRA is significantly larger than his. So in the interest of growing his IRA faster and provide more options when he is eligible to tap into that IRA, rather than pool my money with his to purchase outright, I was wondering if my IRA could simply be the bank. My IRA collects a competitive interest rate, but his collects all the rental proceeds and captures the appreciation upon the sale.

Thoughts??

Brian Eastman · Answer

@Theresa White

Unfortunately, you may not do this.

Not only is your husband disqualified to your IRA, but his IRA is as well. You could joint venture the IRA's, but your IRA's cannot transact with each other in any way.

Theresa White · Answer

@Rajeev Kotyan, Thanks for the input...it's like a beautiful field of flowers planted atop landmines. Thanks to you and the others for posting the clear warning signs!

Darrin Carey · Answer

@Rajeev Kotyan The subtleties involved with self-directed IRAs are many. Fortunately for us, we made a conscious decision to invest together long before any specific deal came along.

The more professionals I learn from, the crazier it seems. It makes me keep my IRA transactions simple and straightforward.

With all the rules involved, the people running around selling "checkbook IRAs" to people (especially newbies) really concern me.

Darrin Carey · Answer

@Theresa White, Joining two IRAs and doing a JV with both of them works really well. My wife and I do that. We also choose the types of deals we put in each IRA so we can get the growth where we want it.

Keep in mind if the IRAs borrow money (must be from someone who is not disqualified), it must be "non-recourse", and you cannot put a personal guarantee on it. A loan may also bring UBIT into play. If it does, you MAY have to file a tax return for your IRA, and pay taxes at the trust rate.

Mark Nolan · Answer

@Theresa White

The following IRS link is a good reference for the prohibited transaction rules.

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-prohibited-transactions

Rajeev Kotyan · Answer

@Darrin Carey and @Theresa White: Having both your individual IRA participate in a JV is completely acceptable, so long as you do not activate "enabling" on each other's IRA's. This is very subtle in terms of activation:

(1) If H & W IRA simply decide to participate in a partnership so as to be able to purchase properties for rehab and sell (or rent), but no clear property has been identified at the time the partnership was formed, then enabling has not been triggered.

(2) If H & W IRA have decided to partner together to complete an acquisition whether directly from the IRA's or through an entity, and either one of those IRA's cannot complete the transaction by themselves (i.e. having adequate cash, other assets that can be sold in a timely manner, getting a loan, transfers funds in to the IRA), then there is a potential for enabling to be triggered.

Enabling an IRA by a disqualified party is a prohibited transaction and can cause the IRA to be disqualified.

Do note that the situations I have described in (2) are only a small sampling and you have to document why a specific JV has not triggered enabling. Do not that sometimes while on the surface it may look like enabling, it is the legal documentation of the entity that can also help remove the enabling issue.

Please work with a qualified and knowledgeable professional with you are participating in any form of JV which involves IRA's and disqualified parties (well for that matter any JV's)

Daniel Dietz · Answer

@Theresa White your husband's IRA can borrow other types of funds to help it grow faster'larger, such as Non-recourse Loans, Private Lender Loans, etc... as long as they dont come from you or another disqualified party.

I am currently looking into/working on those avenues in anticipation of our next purchase(s). So far we have been able to pay cash from our SDIRAs.

Dan Dietz

Theresa White · Answer

@Doreen Chaisson and @Brian Eastman: thanks for the quick replies! My first reaction was, "rats!" and my second reaction was, "makes sense."

Thanks again!

Doreen Chaisson · Answer

Your spouse's IRA is also disqualified from you. While your IRA and your husband's IRA could invest together in a piece of property as tenants-in-common, your IRA cannot have any transactions with your husband's IRA (cannot buy from, sell to or extend credit, etc).

Can my SDIRA lend to my husband's SDIRA?

Can my SDIRA lend to my husband's SDIRA?

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