Self-directed IRAs can hold real estate-secured private loans. For sophisticated retirement-account investors, IRA-funded trust deed lending produces 8-13% tax-deferred yields. The mechanics require a self-directed IRA custodian, careful structure to avoid prohibited transactions, and proper loan documentation.
Why use an IRA
Standard IRAs and 401(k)s hold stocks and bonds. Self-directed IRAs can hold real estate, private loans, trust deeds, and other alternative assets. The yields on real estate lending (8-13%) compound tax-deferred (traditional IRA) or tax-free (Roth IRA) — material advantages over taxable trust deed investing.
Self-directed IRA custodians
A handful of specialty custodians serve self-directed IRA investors: Equity Trust, Quest Trust, Madison Trust, IRA Financial. The custodian holds the IRA assets (technically — they're titled in the IRA's name with the custodian as trustee). You direct the investments.
Prohibited transactions
IRS rules prohibit certain transactions involving disqualified persons (you, your spouse, your descendants, your ascendants, and certain related entities). Lending IRA money to your own real estate deal would be a prohibited transaction. Lending to unrelated third parties is fine. Get this wrong and your entire IRA can be disqualified.
Typical IRA loan structure
Promissory note in the name of "John Doe IRA, Equity Trust Custodian." Mortgage recorded in the same name. Loan proceeds funded from the IRA. Payments returned to the IRA. Custodian processes payments and holds proceeds within the IRA.
Real Estate Lending With Your IRA FAQ
No — that's a prohibited transaction. You cannot lend IRA money to yourself, your spouse, your kids, or your parents.
Equity Trust and Quest Trust are the most active. Madison Trust and IRA Financial also serve this market. Fee structures and processing times vary; interview multiple before choosing.
Setup: $50-200. Annual: $200-500. Per-transaction: $50-300 for note origination and amendments. Higher than mainstream brokerage IRAs but trivial relative to the asset yields.
Yes — Roth self-directed IRAs are arguably the strongest vehicle. Roth growth is tax-free, so 10% trust deed yields compound tax-free indefinitely.
Unrelated Business Income Tax can apply if the IRA-held property is leveraged. Pure passive lending (loan + interest income) is not UBIT-subject. Active business operations (flipping property held in the IRA, etc.) can trigger UBIT.
Yes — IRA investors are common in pool-based trust deed funds. Most accept self-directed IRA capital. The fund handles loan origination and servicing; you receive distributions to your IRA.
Educational content only. Private lending involves capital-at-risk and tax/legal complexity. Consult a licensed attorney and CPA before deploying capital.