Thoughts on combining multiple investors from SD IRA to fund loan...

[Andy M.]

I recently did a hard money loan where I combined multiple self directed IRA accounts and money from my company as well. Basically my self directed Roth, my wife's IRA, and the balance was from my LLC. My administrator (APS) didn't have a problem with the loan, but I recently went to lunch with a friend who claims that the IRS frowns upon this. His argument was that I was personally benefiting so the IRS could ultimately unwind the deal. Even though each investor will have equal profits proportional to the % interest contributed to the loan.

I plan on doing a lot more deals like this in the future so I want to make sure that I can "top off" loans with my own money when necessary.

Anyone have experience with this? Again, my administrator claims that it is fine. Is my friend just being ultra safe?

[Randy Rodenhouse]

Based on the wording of your first question, I agree with Jeff S. on most aspects but not sure what was meant about "topping off loans". You can partner with your IRA as long as it states it clearly on the paperwork of who has contributed what undivided interest.

Many people ask whether partnering with myself is prohibited? While the premise is somewhat similar to a prohibited transaction, they're actually two completely different scenarios. The difference is based on who currently owns the property or investment.

If you, a family member, or other disqualified person already owns a property, then investing in that property with your IRA is prohibited.

However, in the partnering scenario, if you and a family member or other partner want to purchase a new property that's not already owned by a disqualified individual, this is not a prohibited transaction. The same thing goes with a lending money.

Here is a scenario based on your second question for buying a property but it could be used as a lending example as well

If you don't have enough funds for a cash purchase, your self directed IRA can purchase an undivided interest in a property.

For example, your self directed IRA could partner with a family member, friend, or business associate to purchase a property for $100,000. The friend could provide 60% of the purchase price ($60,000), and your self directed IRA could purchase the remaining 40% ($40,000).

All ongoing expenses must be paid in relation to your percentage ownership. In our example, for a $1,000 property tax bill, the friend would pay $600 (60%) of the bill and your self directed IRA would pay $400 (40%).

Likewise, if the property collected monthly rent of $1,000, the friend would receive $600 (60%) and your self directed IRA would receive $400 (40%)

I hope that helps.

Randy Rodenhouse