Investing in notes within a self directed IRA

[Eran G.]

I frequently read that investors purchase their notes within a self-directed IRA. I understand the idea to be that the capital gains associated with the interest payments the borrower pays the note holder are then not taxed. Just so I am clear, when investing in notes in this manner, it is assumed that money placed in the self-directed IRA will not be touched until the age of retirement, correct? Meaning, I shouldn't invest in notes (or any other asset class) in my self-directed IRA unless I am prepared to not touch that money I until I retire and that is what most people who are buying notes in the IRA are doing? Am I understanding this correctly? I also understand that the money can be pulled out before retirement, but would then be taxed? Is that correct?

[Marco Bario]

One thing to add...

IRA owners are restricted from providing services beyond basic functions such as signing agreements, paying bills, depositing income, and making decisions as to investments or engagement of business services.

I suspect some investors may play an active role on resolving non-performing notes in their self directed accounts, but there is a restriction against providing services which contribute value. 

In my view, performing notes managed by a Servicer, non-performing notes (NPNs) under a JV where your partner is providing the workout sweat equity, or NPNs where the workout efforts are outsourced to a 3rd party asset manager are good fits for a retirement account. If you plan to roll up your sleeves though, in my view it's not a fit for the retirement account.

Note: I'm not an attorney or tax professional. Be sure to seek professional advice.