Self Directed IRA investor swap
Would like the to understand if I can find a friend to invest in my company, while I invest in their company. Both of us using our self directed IRA. Loan amount of 200k. The way I see it, even they get into trouble and can't pay me back, I would still have their 200k. Or on the flip, if I got into trouble and could not pay it back. They would have my 200k. So in that sense it would be a secure loan. How would the IRS feel about such a relationship. If we both have real, working businesses and all is written up by the lawyers giving a reasonable rate, would it fly? Seems so much more free than trying to invest within a IRA.
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This is called reciprocal lending and is considered a prohibited transaction. Basically your company and his company need money - instead of taking a taxable distribution from your own IRAs to infuse cash into your own respective companies, you are cross-lending to each other to accomplish the same end, which results in the personal benefit of infusion of cash into your company - without a taxable event to you -and a loan that you or he don't necessarily have to pay back. The point of IRA investing is to grow IRA wealth, not have any personal benefit.