Self Directed IRA, Private Lending, and Flipping

[Curt Bixel]

I am in the process of setting up a Self Directed IRA. My goal is to use my Roth IRA to lend funds to an organization that primarily flips homes. While reading through the documentation of the company helping me to set up the SDIRA, I can across the following language:

Client understands that if IRA funds are invested in certain assets, there could be special tax consequences. UBIT (Unrelated Business Income Tax) applies to IRA investments in active businesses. Client also understands that IRA is expected to invest in long-term passive investments for retirement and cannot run a business itself, so there could be problems if IRA is too active in its activities (such as flipping houses). Active enterprises need to be run in an entity outside the plan. UDFI (Unrelated Debt-Financed Income) applies to passive investments that utilize debt financing.

Does this present any sort of issue with my plans for my SDIRA?  I am not a lawyers, but does the fact that I would simply be lending the money to someone who flips houses separate me enough from the activity to satisfy the IRS?  

[Brian Eastman]

@Curt Bixel

As a lender, your IRA is creating passive interest income. That should be nice and clean.

You could have a more complicated situation if the IRA was joint venturing with a flipper and splitting the profits.

A custodian cannot provide you with tax or legal advice. I strongly recommend you get a qualified CPA or attorney to guide you in the usage of your self-directed IRA.