Partnering with Self-Directed IRA

[Tyra Walsh]

I was wondering if anybody knows if it is possible to partner with your self-directed IRA so that the IRA provides the down payment for a purchase and then you secure a loan with your own credit/income?

Thanks!!

[Dmitriy Fomichenko]

@Tyra Walsh, what you describe is not possible. 

Your IRA can buy investment property on it's own but it would have to use non-recourse loan, since you are considered to be a disqualified person to your IRA you are prohibited from extending credit to your IRA therefore conventional financing would not be allowed. If you were to do so IRS would call this a Prohibited Transaction and your entire IRA would be considered distributed. Here is a link for reference:

https://www.irs.gov/retirement-plans/plan-particip...

[Mark Nolan]

@Tyra Walsh

Excellent question and one we get all of the time. Unfortunately, such transaction is not allowed and it would run afoul with the following prohibited transaction rule. 

"Lending of money or extending credit between a plan and a disqualified person."

However, if you are self-employed (just part-time activity is required and you can still work for a full-time employer as well) you could open a solo 401k plan, transfer your IRA or former employer plan to the solo 401k plan, then borrow borrow from the solo 401k plan and use those proceeds to invest in real estate outside of the IRA or solo 401k plan. You can then secure the rest of the purchase with your own credit/income.

Under the solo 401k loan policy, the solo 401k participant may generally receive a loan of up to 50 percent of her vested account balances, up to a maximum loan amount of $50,000. The maximum loan amount is calculated differently, however, if a participant already has an outstanding solo 401k plan loan. To learn more about the solo 401k loan rules, see the following. 

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-loans