Using Your Self-Directed IRA to Invest in Hard-Money Lending – Part 2

Posted on October 5, 2013 by


Hard money lending can be a great place for self-directed IRA or other retirement assets. There are, however, a few things to be aware of before you commit:

  • Hard money loans can be illiquid. If you are nearing or over age 70, pay attention to your required minimum distributions. You must make these RMDs, even if the borrower pays the loan late. You may want to earmark RMD money to come from another source besides the hard money lending part of your portfolio.
  • RMDs do not always have to be taken in the form of cash, some self-directed IRA investors that do hard money lending have elected to take their RMD in the form of the actual loans themselves. In fact, you can even take a portion of the loan as your RMD thus becoming partners with your IRA on that loan. (For Example: You can take 25% of the loan as your RMD. You would then own 25% of the loan and your IRA would own the other 75% of the loan.)
  • Your ability to contribute new money to your self-directed IRA or other retirement account is limited each year. For self-directed IRAs, for example, you are limited to $5,500 in new contributions. Anything over that must be rolled over into the account from another qualified retirement asset, or you will have to borrow the difference.
  • You cannot lend money to yourself or certain family members, via your self-directed IRA. You therefore cannot make a hard money loan to any property in which you, your spouse, your ascendants or descendants and their spouses has an interest. Similarly, you cannot lend money from your self-directed IRA to any project in which any legal, accounting or financial professional who advises you on your self-directed IRA investments has an interest.

Consider a Roth self-directed IRA

In some cases, a Roth self-directed IRA may be the ideal investment vehicle for hard-money lending. Why? Because income from hard money loans is normally taxable as ordinary income. But in a Roth self-directed IRA, that income is entirely tax free. Secondly, a Roth self-directed IRA has no required minimum distributions. You’ve already paid your income tax! You can therefore make longer term loans, with balloon payments in out years, interest-only deals, or any other loan structure that works for you and the borrower – without regard to worrying about RMDs.  It’s like playing tennis without a net! Much easier!

To get started, give American IRA a call at 866-7500-IRA (472). We’ll send you all the paperwork you need to establish the foundation for your own tax-advantaged hard money lending operation, leveraging the benefits of self-directed IRAs, Roth self-directed IRAs and other retirement accounts.

How do you use your self-directed IRA or other retirement account to do this? Simple:

Call American IRA at 866-7500-IRA (472), and open an account with us. We are a third-party administrator specializing in self-directed IRAs and other retirement accounts. Whether you have an IRA, Roth IRA, SEP-IRA, SIMPLE IRA, 401(k), Coverdell or health savings account, we can help you take direct control of your IRA to invest in hard money lending, traditional mortgage lending, private business and personal loans, private bond placements, convertible securities, or nearly any other investment you can think of.

Tip: The only restrictions on IRA money are prohibitions on investing in life insurance, certain forms of precious metals, gems, jewelry, collectibles and alcoholic beverages. You also cannot invest in property you intend to use yourself, nor can you use your IRA for the purposes of enriching your children, grandchildren, parents, grandparents, spouses or in-laws.

Jim HittJim Hitt is the Chief Executive Officer of American IRA and he has been committed to all aspects of investing for more than 30 years, using self-directed IRAs for his own investments since 1982. Jim’s forte is the financing and acquisition of real estate, private offerings, mortgage lending, business’s, joint ventures, partnerships and limited liability companies using creative techniques.

Contact Jim Hitt

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