What is a Self-Directed IRA?

A Self-Directed IRA is a Traditional, Roth, SEP, or other eligible IRA whose qualified trustee or custodian supports investments beyond the conventional products commonly offered by brokerage firms. Depending on the custodian's policies, supported assets may include certain real estate interests, private company investments, promissory notes, qualifying precious metals, and other eligible assets. The account holder selects and evaluates investments, while the qualified trustee or custodian maintains the IRA and handles required account reporting.

What are the benefits of a Self-Directed IRA?

Potential benefits include access to eligible alternative assets, greater investment-direction flexibility, and diversification beyond publicly traded securities. The account retains the federal tax treatment of its underlying IRA type: Traditional IRA earnings generally grow tax-deferred, while qualified Roth IRA distributions may be tax-free. Certain business or debt-financed investments may generate unrelated business taxable income and separate filing obligations.

Why haven't I heard of Self-Directed IRAs before?

A Self-Directed IRA is not a separate statutory IRA category. The term describes an IRA whose qualified trustee or custodian supports a broader investment menu. Many banks and brokerage firms focus on publicly traded securities and do not provide the custody, valuation, documentation, or transaction-processing services needed for alternative assets.

What is the Self-Directed IRA process?

The general process is to establish the appropriate IRA, fund it through an eligible contribution, transfer, or rollover, identify an eligible investment, complete due diligence, and submit investment-direction documents. The qualified trustee, custodian, or administrator then reviews the documentation and processes the transaction according to the account agreement and applicable rules.

How do I fund a Self-Directed IRA?

A Self-Directed IRA may generally be funded through annual contributions, a trustee-to-trustee transfer from another IRA, or an eligible rollover from a former employer's retirement plan, such as a 401(k), 403(b), or Thrift Savings Plan. Inherited retirement accounts are subject to separate beneficiary and transfer rules. Contribution eligibility and limits depend on the underlying account type.

What are allowable and prohibited IRA transactions?

An IRA may enter eligible transactions with unrelated parties when the investment is supported by the custodian and complies with applicable rules. Prohibited transactions generally include sales, exchanges, leases, loans, extensions of credit, services, transfers of assets, or personal use involving the IRA and a disqualified person. Disqualified persons can include the IRA owner, certain fiduciaries and service providers, the owner's spouse, ancestors, descendants, spouses of descendants, and certain related entities.

Can an IRA partner with another investor?

An IRA may sometimes co-invest with another IRA, person, or entity when the transaction is properly structured and does not involve a prohibited transaction. Ownership percentages, funding obligations, expenses, income, and distributions should be documented and allocated according to the parties' ownership interests. Transactions involving the IRA owner or another disqualified person require particular caution and professional review.

What are the steps to buying an asset in an IRA?

After completing due diligence, the account holder submits investment-direction forms and supporting documents to the IRA administrator or qualified custodian. The custodian processes payment using IRA funds and records the investment under the required IRA titling format. Ownership evidence may include a deed, membership certificate, subscription agreement, promissory note, title, statement, or bill of sale identifying the IRA or IRA-owned entity as the owner.

What is the role of IRA Club?

IRA Club provides self-directed retirement account administration, documentation support, transaction processing, recordkeeping, and coordination with applicable custodial arrangements. Qualified trustees or custodians maintain legal custody of IRA assets and perform required account reporting. Account holders remain responsible for selecting investments, conducting due diligence, assessing risks, and obtaining legal, tax, or investment advice when needed.

Can an IRA borrow money?

An IRA may use properly structured financing for certain investments. The IRA owner or another disqualified person generally cannot lend money to the IRA, guarantee its debt, pledge personal assets, or use the IRA as security. Financing is therefore commonly structured as non-recourse debt in which the lender's remedies are limited to the financed asset. Debt-financed income may create unrelated debt-financed income and Form 990-T filing obligations.

Can a minor have an IRA?

Yes. There is no federal minimum age for owning or contributing to an IRA. However, the minor must have qualifying taxable compensation, such as wages or net earnings from self-employment, and the contribution cannot exceed the applicable annual limit or the minor's eligible compensation. A parent or other adult may need to serve as custodian of the account under applicable state law until the minor reaches the required age.

Should I name beneficiaries for my IRA?

Naming primary and contingent beneficiaries is generally advisable because it identifies who should receive the account after the owner's death. If no valid beneficiary is named, the account agreement and applicable law determine who receives the IRA, which may result in the estate becoming the beneficiary. Distribution options, deadlines, tax treatment, and whether assets can remain invested depend on the beneficiary's relationship to the owner and applicable inherited IRA rules.

How do I take cash out of my IRA Club account?

To request cash from an IRA Club account, submit the applicable distribution request form and follow the account's processing requirements. A reportable IRA distribution generally results in Form 1099-R. The taxable amount depends on the account type, contribution history, conversion history, and distribution circumstances. A distribution before age 59 and a half may be subject to a 10% additional federal tax unless an exception applies. Different rules may apply to early SIMPLE IRA distributions.

What does it mean to become an IRA Club member?

An IRA Club member is an account holder receiving IRA Club's account administration and member-support services. Members may work with designated representatives for account documents, transaction requests, forms, funding questions, distributions, reporting, and other administrative needs. Membership does not include investment, tax, financial, or legal advice.

What does IRA Club membership include?

Membership may include account administration, access to a dedicated representative, educational resources, transaction-processing support, required IRA information reporting, and general review of proposed transactions for potential administrative or prohibited-transaction concerns. Separate asset-holding, transaction, banking, setup, and other activity-based fees may apply according to the current fee schedule.

How does IRA Club charge account fees?

IRA Club generally deducts applicable fees from available cash in the retirement account. Members may be able to pay certain fees using a credit or debit card. Membership fees are generally due when the account is opened and annually thereafter. Additional per-holding, transaction-processing, banking, setup, valuation, termination, and other fees may apply. Members should review the current fee schedule because fees are subject to change.

Is there a minimum cash-balance requirement?

IRA Club's current fee schedule states that each applicable self-directed account must maintain a minimum cash balance of $500. If the cash balance is below the required amount, a $100 low-balance charge may apply at renewal. Requirements and fees are subject to change, so members should review the current published fee schedule.

What is the IRA transfer process?

To request an IRA-to-IRA transfer, complete the transfer form with the current institution, account type, account number, transfer amount, and other requested information. The transfer is generally processed directly between the current trustee or custodian and the receiving trustee or custodian. Assets may sometimes transfer in kind when both institutions support them. Otherwise, unsupported securities or assets may need to be liquidated before cash can be transferred. Transfer timing depends on the institutions, asset types, documentation, and funding method.

What is a Crypto IRA, and how does it work?

A Crypto IRA is a Self-Directed Traditional or Roth IRA that may hold certain digital assets supported by the qualified IRA custodian and its associated technology, trading, and custody arrangements. The qualified trustee or custodian maintains the IRA and handles required account reporting. An IRA administrator may assist with account setup, documentation, transaction processing, and coordination with supported platforms but does not serve as the legal custodian unless separately qualified to do so.

Why might someone consider a Crypto IRA?

Some account holders consider a Crypto IRA to obtain retirement-account exposure to supported digital assets. Digital-asset prices may be affected by network activity, market demand, liquidity, technology developments, regulation, security events, and investor sentiment. Cryptocurrency can experience substantial price volatility and loss, so account holders should evaluate the investment, custody arrangements, fees, liquidity, and risks before directing an IRA transaction.

What types of digital assets can be held in a Crypto IRA?

A Crypto IRA may hold only the digital assets supported by the qualified IRA custodian and the applicable technology, exchange, and custody providers. Supported assets vary and may include established cryptocurrencies such as Bitcoin or Ethereum, but availability can change. Account holders should review the current supported-asset list, storage arrangement, trading procedures, valuation method, transaction fees, and liquidity terms before opening or funding an account.

Can a Crypto IRA be structured to comply with IRA rules?

Yes. An IRA may hold certain supported digital assets when the account is maintained by a qualified trustee or custodian and operated according to applicable IRA rules. The arrangement must follow requirements involving account ownership, custody, reporting, contributions, distributions, and prohibited transactions. The IRS treats digital assets as property for federal tax purposes but does not approve or endorse individual Crypto IRA providers, platforms, cryptocurrencies, or investment decisions.

Why is a Self-Directed IRA commonly used for cryptocurrency?

A Self-Directed IRA is commonly used because its custodian may support asset types that are unavailable through conventional brokerage IRAs, including certain digital assets. It is not a separate statutory IRA category; it remains an underlying Traditional, Roth, SEP, or other eligible IRA arrangement. Cryptocurrency support depends on the custodian's policies and its approved trading, storage, valuation, and reporting procedures.

Can a Checkbook IRA LLC invest in real estate?

A Checkbook IRA LLC may acquire, hold, and sell eligible real estate when the transaction is supported by the qualified IRA custodian and complies with applicable retirement-account rules. The IRA-owned LLC must own the property, related income and expenses generally must flow through the LLC account, and the account holder or another disqualified person cannot personally use or improperly benefit from the property.

What are the primary features of a Checkbook IRA LLC?

A Checkbook IRA LLC may allow an IRA-owned LLC to make investment-related payments through a dedicated checking account without submitting every payment to the qualified IRA custodian for processing. Potential features include faster transaction execution, access to eligible alternative assets, and centralized payment management. The structure also places greater recordkeeping and compliance responsibility on the account holder.

What are the risks of a Checkbook IRA LLC?

Risks may include investment losses, inadequate documentation, improper titling, commingling personal and retirement funds, valuation problems, prohibited transactions, and incorrect use of the LLC checking account. A prohibited transaction involving the IRA owner or beneficiary may cause the IRA to lose its tax-advantaged status and be treated as distributed under applicable federal tax rules.

What is the difference between a Self-Directed IRA and a Checkbook IRA LLC?

A Checkbook IRA LLC is not a separate IRA type. It is a Self-Directed IRA structure in which the IRA owns a limited liability company. With a standard Self-Directed IRA, investment documentation and payments are generally processed through the qualified IRA custodian. With a Checkbook IRA LLC, the IRA-owned LLC may make eligible investment-related payments through its dedicated bank account, subject to applicable rules and documentation requirements.

Do I establish the Self-Directed IRA or the LLC first?

The Self-Directed IRA is generally established before the Checkbook IRA LLC. A new LLC is then formed with the IRA identified as its owner or member in the applicable formation and operating documents. The LLC obtains its own employer identification number and opens a dedicated bank account titled to the LLC. The qualified IRA custodian holds and records the IRA's ownership interest in the LLC.

Are there compliance requirements for a Checkbook IRA LLC?

Yes. Checkbook IRA LLC transactions remain subject to applicable IRA rules, including prohibited-transaction restrictions. Personal use of IRA LLC assets, transactions with disqualified persons, personal payment of LLC expenses, and personal guarantees of LLC debt can create compliance concerns. When an IRA LLC uses borrowing for an investment, the financing generally must be structured without personal recourse to the IRA owner. Debt-financed investments may also create separate tax and reporting considerations.

Can I use an existing LLC for my Checkbook IRA LLC?

A Checkbook IRA LLC is typically formed as a new LLC owned by the Self-Directed IRA. Transferring IRA funds to an existing LLC already owned or controlled by the account holder or another disqualified person may create a prohibited transaction. The ownership history, capitalization, management, and proposed transaction should be reviewed by qualified legal and tax professionals before IRA funds are invested.

How do I set up a Checkbook IRA LLC?

The process generally includes establishing a Self-Directed IRA, forming a new LLC under applicable state law, preparing an operating agreement that identifies the IRA as the LLC owner, obtaining an EIN for the LLC, directing the IRA custodian to acquire the LLC interest, and opening a dedicated LLC bank account. Personal, business, IRA, and IRA LLC funds must remain properly separated.

What can I invest in with a Checkbook IRA LLC?

Depending on the custodian's policies and the transaction structure, an IRA-owned LLC may hold eligible assets such as real estate, private company interests, private lending assets, and certain crowdfunding investments. The structure cannot be used to avoid restrictions on life insurance, collectibles, personal use, dealings with disqualified persons, or other prohibited transactions.

What are the most common retirement plans for self-employed individuals?

Self-employed individuals may consider retirement arrangements such as SEP IRAs, SIMPLE IRAs, Solo 401(k) plans, and Traditional or Roth IRAs. Each option has different rules governing business eligibility, employee participation, contributions, plan administration, reporting, and available tax treatment. The appropriate arrangement depends on factors such as business structure, compensation, number of employees, desired contribution features, and administrative responsibilities.

How does a SEP IRA work for a small business owner?

A SEP IRA is an employer-sponsored retirement arrangement through which an employer contributes to SEP IRAs established for eligible employees, including an eligible self-employed owner. SEP plans generally permit employer contributions only and do not allow employee salary deferrals. When an employer contributes, the contribution rate generally must be applied uniformly to eligible participants, subject to applicable compensation and annual contribution limits.

What is a SIMPLE IRA, and is it right for my business?

A SIMPLE IRA is a retirement plan generally available to an eligible employer with 100 or fewer employees who received at least the applicable compensation amount during the preceding year. Employees may make salary-reduction contributions, and the employer generally must make either a matching contribution or a nonelective contribution. An employer generally cannot maintain another retirement plan for the same year unless a specific exception applies.

Can a Solo 401(k) offer higher contribution limits than other plans?

A Solo 401(k) may allow an eligible business owner to contribute more at a given income level than certain other retirement arrangements because the owner can contribute in both employee and employer capacities. A SEP IRA generally permits employer contributions only. Solo 401(k) and SEP IRA contributions may ultimately be subject to the same annual defined-contribution limit, but a Solo 401(k) may also permit age-based catch-up contributions when allowed by the plan.

What are the differences between a Traditional and a Roth Solo 401(k)?

Traditional Solo 401(k) elective deferrals are generally made on a pre-tax basis, reducing current taxable income, and distributions are generally taxable when withdrawn. Designated Roth Solo 401(k) elective deferrals are made with after-tax dollars. Qualified Roth distributions may be received tax-free when the applicable holding-period and distribution requirements are satisfied. Availability of Roth contributions depends on the provisions of the Solo 401(k) plan.

What is a Health Savings Account and how does it work?

A Health Savings Account, or HSA, is a tax-advantaged trust or custodial account used to pay or reimburse qualified medical expenses. Eligible contributions made directly by an account holder may be federally tax-deductible, while qualifying employer contributions may be excluded from income. Earnings generally accumulate tax-free at the federal level, and distributions used for qualified medical expenses may also be federally tax-free. Unused funds remain in the account and carry over from year to year.

Who is eligible to open and contribute to an HSA in 2026?

To contribute to an HSA, an individual generally must have qualifying HSA-compatible health coverage, have no disqualifying additional health coverage, not be enrolled in Medicare, and not be eligible to be claimed as another person's tax dependent. Beginning in 2026, certain bronze and catastrophic health plans are treated as HSA-compatible, and an otherwise eligible person may participate in certain direct primary care arrangements without losing HSA contribution eligibility.

Can I invest the money in my HSA?

Yes, when permitted by the HSA trustee or administrator. Depending on the account provider, an HSA may support conventional investments such as mutual funds, stocks, bonds, or exchange-traded funds, as well as certain eligible alternative assets. Not every HSA supports the same investments, and alternative assets may involve additional documentation, valuation, liquidity, fee, and prohibited-transaction considerations.

What expenses can I pay for with HSA funds?

HSA funds may be used tax-free for eligible unreimbursed medical expenses incurred after the HSA is established. Examples can include qualifying doctor visits, prescriptions, dental care, vision care, certain over-the-counter medicines and products, and other medical expenses defined under applicable federal tax rules. Records should be retained to show that an expense was qualified and was not reimbursed or deducted elsewhere.

Can I have both an investable HSA and an HSA with a debit card?

Yes. An individual may maintain more than one HSA, such as an investment-focused HSA and another HSA offering debit-card access. The accounts remain separately maintained and may have different fee schedules. However, total annual contributions made across all of an individual's HSAs cannot exceed the applicable annual HSA contribution limit. An HSA cannot be jointly owned, so each spouse must maintain a separate HSA.

What are the primary benefits of a Solo 401(k)?

A Solo 401(k) may allow an eligible business owner to make contributions in both employee and employer capacities. Depending on the plan documents, it may also support traditional or designated Roth contributions, participant loans, and a broader range of investments. A one-participant plan can also avoid certain nondiscrimination testing while it covers only the business owner and, when applicable, the owner's spouse.

Who is eligible for a Solo 401(k)?

A Solo 401(k) is generally intended for a business owner with self-employment income and no common-law employees other than the owner and the owner's spouse. Eligible business structures may include sole proprietorships, partnerships, limited liability companies, and corporations. If the business hires employees who satisfy the plan's eligibility requirements, they generally must be included and the plan may no longer operate as a one-participant 401(k).

What is the difference between a Solo 401(k) and a Self-Directed SEP IRA?

A Solo 401(k) may receive both employee elective deferrals and employer contributions, while a SEP IRA generally receives employer contributions only. A Solo 401(k) may also include designated Roth contributions and participant loans when permitted by its plan documents. SEP IRAs do not permit participant loans and generally have simpler administration. Although both arrangements are subject to annual contribution limits, a Solo 401(k) may allow some owners to contribute more at lower income levels because of its employee-deferral component.

What investments can I make with a Solo 401(k)?

A Solo 401(k) may hold investments supported by its plan documents and service providers. Depending on the plan structure, these may include publicly traded securities and eligible alternative assets such as real estate, private company interests, qualifying precious metals, certain digital assets, tax liens, and private loans. Every transaction must comply with the plan documents, applicable retirement-plan rules, and restrictions involving disqualified persons and prohibited transactions.

Will I have a dedicated checking account?

Depending on the Solo 401(k) plan structure, a dedicated bank account titled to the plan, plan trust, or plan-owned entity may be established for permitted plan transactions. IRA Club also offers a checkbook-control structure for qualifying plans. The account must remain separate from the participant's personal or business accounts, and plan funds cannot be used for personal expenses.

What is the Solo 401(k) setup process?

The process generally includes confirming eligibility, selecting the plan features, adopting the required plan documents, obtaining applicable employer or plan identification numbers, establishing the plan's trust or custodial account, naming the trustee or responsible parties, and funding the plan through eligible contributions or rollovers. The plan must then be operated according to its governing documents and applicable reporting requirements.

How do I fund the Solo 401(k)?

A Solo 401(k) may be funded through employee elective deferrals and employer contributions based on eligible compensation or net earnings from self-employment. A self-employed owner's employer contribution requires a special calculation that accounts for self-employment tax and the contribution itself. The plan may also accept eligible rollovers when permitted by its documents. Funds should be deposited into the properly titled plan account and accurately recorded by contribution or rollover type.

How can I start a Solo 401(k)?

First confirm that the business has eligible self-employment activity and no common-law employees other than the owner and spouse. Next, choose the required plan features, complete and adopt the plan documents, obtain any required identification numbers, establish the plan account, and make eligible contributions or rollovers. The plan owner must also maintain records and satisfy ongoing requirements, including Form 5500-EZ filing when applicable.

What is a self-directed SEP IRA?

A self-directed SEP IRA is a SEP IRA established under Internal Revenue Code Section 408(k). The self-directed designation refers to an account structure in which the qualified IRA custodian may permit investments beyond conventional publicly traded securities, subject to applicable federal tax rules and the custodian's asset policies. Employer contribution, eligibility, distribution, and tax rules remain the same as those governing a standard SEP IRA.

Non-Recourse Lenders for Self-Directed IRA Real Estate

A non-recourse loan may allow a Self-Directed IRA to borrow against real estate when the IRA lacks sufficient cash to purchase the property outright. This resource provides a reference list of IRA non-recourse lenders and explains key loan, documentation, and tax considerations.

A non-recourse loan for IRA real estate means the IRA itself is the borrower. The account holder is not personally liable for repaying the loan.

The loan is made to the IRA and secured by the property. Under the loan terms, the lender’s recourse is limited to the collateral property.

Why does an IRA need a non-recourse loan?

Your IRA needs a non-recourse loan because your IRA is an entity, not a person, and cannot personally make a guarantee that the loan will be paid off. Even as the IRA account holder, you cannot guarantee any loan your IRA takes when purchasing investments like real estate because you, the account holder, are considered a disqualified person to your IRA in accordance with IRS Code IRC 4975 (c)(1)(B). A non-recourse loan is a strategy some investors use when their IRAs don’t have enough funds to purchase an investment property on their own.

Benefits

A Self-Directed IRA may use borrowed funds to acquire real estate, subject to IRS rules, lender terms, custodian procedures, and account documentation.

If a default occurs, the lender’s recourse is generally limited to the pledged collateral rather than the account holder’s personal assets, subject to the loan documents.

Drawbacks

Higher interest rates for loans compared to traditional loans due to higher risk to the lender, as well as a larger down payment requirement.

Limited lender options for non-recourse financing due.

Non-recourse loans trigger UBIT from Unrelated Debt-Financed Income (UDFI) on the income generated from the debt-leveraged investment.

Non-recourse loan availability may vary by state, property type, and lender program. Confirm availability and loan requirements directly with the lender before proceeding.

The Process For Securing an Investment with a Non-Recourse Loan

Open and Fund a Self-Directed IRA

To get started, open your SDIRA and fund the account with a contribution, a transfer from an existing IRA, rollover from a 401(k) or all three.

Find Your Investment

Find your investment by networking at local events or browsing through Investor’s Row. A self-directed IRA allows you to invest in a wide variety of alternative asset classes.

Your IRA Secures a Non-Recourse Loan

Find a lender that specializes in non-recourse loans. Be prepared to provide property details as well as have the IRA put down a larger down payment to secure the loan.

Closing on the Investment

Send over the documentation to IRA Club and complete any additional details needed to fund the investment. IRA Club will work with your lender and handle the closing on behalf of your SDIRA.

Managing the Investment

Your IRA secured the investment. The income received to the IRA will help pay down the loan and when all debt is settled, your IRA will own the investment full and clear.

Unrelated Debt-Financed Income (UDFI) — Know This Before You Borrow

When a Self-Directed IRA uses a non-recourse loan to acquire income-producing real estate, a portion of the income or gain from the debt-financed property may be treated as unrelated debt-financed income (UDFI). UDFI may be included in unrelated business taxable income (UBTI) and may result in unrelated business income tax (UBIT), depending on the transaction and applicable tax rules. (Internal Revenue Code §512 and §514)

UDFI treatment may depend on factors such as acquisition indebtedness, adjusted basis, and income from the property. For additional educational information, see [UBIT/UDFI resource page].

Non-Recourse Lenders

The organizations below are listed as reference contacts for IRA non-recourse lending. Loan availability, underwriting standards, property eligibility, state availability, rates, down payments, and other terms may change. IRA Club does not determine whether a lender, loan, or investment is appropriate or eligible. IRA Club does not evaluate lender underwriting criteria or loan terms, determine investment eligibility, or provide tax, legal, or investment advice.

Name	Website	Phone Number
First Western Federal	Visit Site	605-341-1203
LoanBidz	Visit Site	417-605-2196
North American Savings Bank	Visit Site	855-211-3340
Red Rock Capital	Visit Site	719-900-5400
Peak Asset Lending	Visit Site	913-956-7325
Fortis Bank	Visit Site	720-616-4000

IRA Club does not endorse, recommend, or receive commissions, fees, or other compensation from the lenders listed below. This list is provided for reference only. Lender availability, IRA non-recourse loan programs, and transaction terms may change. Confirm directly with each lender whether it currently offers IRA non-recourse loans and whether its terms apply to the proposed property and transaction. Last reviewed: [Month Year].

For information about Self-Directed IRA or Solo 401(k) account setup, administrative support, and educational resources, contact IRA Club at 312-795-0988.

Non-Recourse Loan Terms and Lender Questions

Non-recourse loan terms and underwriting requirements may vary by lender, property type, state, and transaction structure. The following questions may help clarify a lender’s program requirements:

What interest rate, fees, closing costs, and other loan terms apply?
What loan-to-value (LTV) ratio does the lender use for the proposed property?
How does the lender evaluate projected property income and expenses for underwriting purposes?
How are defaults, collateral recovery, and other loan remedies addressed in the loan documents?
What minimum down payment or equity contribution does the lender require?
Does the lender offer IRA non-recourse loans for the proposed property type and state?

Frequently Asked Questions

How do I find non-recourse lenders for my IRA?

The reference list above identifies organizations that may offer IRA non-recourse lending. Each lender can confirm whether it currently offers IRA non-recourse loans and whether its programs apply to the proposed property, state, and transaction. IRA Club does not endorse or recommend any lender and does not determine investment eligibility or provide tax, legal, or investment advice.

What is the typical down payment for an IRA non-recourse loan?

Many IRA non-recourse lenders require a down payment of 30–40%, with loan-to-value (LTV) ratios typically in the 60–70% range. These ranges may be higher than those for some conventional investment-property loans because the lender’s recovery may be limited to the collateral under the loan documents. Loan requirements vary by lender, property type, state, and transaction.

Can using a non-recourse loan trigger UDFI tax?

It may. When an IRA uses debt financing to acquire income-producing property, a portion of the income or gain from the debt-financed property may be treated as unrelated debt-financed income (UDFI). UDFI may be included in unrelated business taxable income (UBTI) and may be subject to unrelated business income tax (UBIT), depending on the transaction and applicable tax rules.

For additional educational information, see [UBIT/UDFI resource page]. Tax treatment depends on the specific transaction and applicable tax rules.

Can my IRA and a partner both contribute to the same property?

An IRA may co-invest in a property with another investor, entity, or IRA. Each participant holds a documented proportional ownership interest, and income, expenses, and sale proceeds are generally allocated according to that ownership interest.

All transactions must correspond to the percentage shared. When transactions don’t have a clear separation or don’t match up with the percentage shared between the partners, especially for disqualified persons, it may create prohibited-transaction concerns under Internal Revenue Code §4975. Co-ownership structures may be used when an IRA does not have sufficient cash to acquire a property without borrowing.

What happens if my IRA defaults on a non-recourse loan?

If an IRA defaults on a non-recourse loan, the lender’s remedies are generally limited to the collateral securing the loan, such as the property. The lender may exercise its rights under the loan documents, including foreclosure on the collateral.

The account holder is not personally liable, and the lender’s recourse does not extend to other IRA assets, subject to the loan documents and any applicable legal exceptions. Non-recourse financing is generally used for IRA real estate because a personal guarantee by the account holder may create prohibited-transaction concerns under Internal Revenue Code §4975.

What types of properties can I buy with an IRA non-recourse loan?

Lender programs may support property types such as single-family rentals, multifamily properties, and certain commercial real estate. The IRA’s ability to acquire a property depends on applicable IRS rules, lender terms, custodian procedures, and transaction documentation.

Availability varies by lender, state, and property type. Each lender can confirm whether its IRA non-recourse loan program applies to the proposed property and location.

IRA Club does not provide financial, tax, legal, or investment advice and does not endorse products, investments, or companies. Readers may conduct appropriate due diligence and consult qualified professionals regarding their specific circumstances before entering an investment transaction. Due diligence may help identify material transaction risks, including potential fraud.

Unrelated Debt Finance Income (UDFI)

When utilizing a non-recourse loan, keep in mind that your IRA is subject to UDFI tax for the net income generated from the debt-leveraged amount on the property.

IRA Club does not offer investment, tax, financial, or legal advice, nor do we endorse any products, investments, or companies that provide such advice. All parties are strongly encouraged to perform due diligence and consult with the appropriate professionals licensed in that area before entering into any investment agreement or purchase. Performing due diligence helps protect against fraud.