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Self Directed IRA basics
Statutes
IRA Investment Restrictions
IRC § 408(a)(3) Life insurance.
IRC § 408(m) Collectibles such as art, stamps, certain coins, alcoholic beverages, or antiques.
IRS Letter Ruling 199929029, April 27, 1999, IRC § 1361 (b)(1)(B) S-corporation stock.
IRC § 4975 Any investment that constitutes a prohibited transaction pursuant to (e.g., purchase of any investment from a disqualified person such as the spouse of the retirement account owner).
SELF DIRECTED IRA INVESTMENT EXAMPLES
| Single Family Rental Property | Multi Family Rental Property |
| Commercial Real Estate | Raw Land |
| Contractual Interest in Real Estate | Tenant In Common Interest In Real Estate |
| Water Rights | Mineral Rights, Oil and Gas |
| Real Estate Development | Tax Liens |
| LLC Membership Interest in the business of real estate, technology, manufacturing and other service businesses | Limited Partnership Interest (“LP”) in the business of real estate, technology, manufacturing and other service businesses |
| Corporation, C corp, in technology, manufacturing and other service businesses | General Partnership Investment In Real Estate |
| Joint Venture Investment in Real Estate and numerous other industries | Real Estate Loan, Promissory Note and Deed of Trust/Mortgage |
| Restaurant partnership business. | Business Loan, Secured by Equipment/Assets of Business |
| Loan/Promissory Note Un-Secured | Purchase of Livestock |
| Gold, Silver, and other precious metals | IRA/LLC |
| Hedge Funds Investments | Private Placement Companies |
| Intellectual Property Patent Interest | Private Placement Memorandum Investments |
| Stock Options and Warrants | Non-Publicly Traded Company Ownership |
CAN I TRANSFER/ROLLOVER TO A SELF DIRECTED IRA?
| Situation | Transfer/Rollover |
| I have a 401(k) account with a former employer. | Yes, you can rollover to a self directed IRA. *If it is a Traditional 401(k), it will be a self directed IRA.*If it is a Roth 401(k), it will be a self directed Roth IRA. |
| I have a 403(b) account with a former employer. | Yes, you can roll-over to a traditional self directed IRA. |
| I have a Traditional IRA with a bank or brokerage. | Yes, you can transfer to a self directed IRA. |
| I have a Roth IRA with a bank or brokerage. | Yes, you can transfer to a self directed Roth IRA. |
| I inherited an IRA and keep the account with a brokerage or bank as an inherited IRA. | Yes, you can transfer to a self directed inherited IRA. |
| I don’t have any retirement accounts but want to establish a new self directed IRA. | Yes, you can establish a new self directed Traditional or Roth IRA and can make new contributions according to the contribution limits and rules found in IRS Publication 590. |
| I have a 401(k) or other company plan with a current employer. | No, in most instances your current employer’s plan will restrict you from rolling funds out of that plan. However, some plans do allow for an in-service withdrawal if you are at retirement age. |
Blog Articles
Promissory Notes and Loan Investments
Statutes
IRC § 4975(c)(1)(E). The IRA owner should not personally receive the payments for the IRA as the IRA owner cannot deal with the income or assets of his or her IRA.
IRC § 408(a). The interest rate charged on a promissory note must be based on an arm’s-length transaction and must be at fair market value in order to be in compliance with the Exclusive Benefit Rule.
Calif. Const. Art. 15. California has a usury law which restricts the interest charged on a loan to a maximum rate of 10 % annually.
UCC-1 filing. A form document signed by the borrower and filed typically with the Secretary of State (or state corporation division, varies by state) where the property and/or the borrower is located. It should identify the borrower, the loan, the secured party (e.g., the IRA), and the property subject to the UCC-1 lien (e.g., equipment VIN, stock/unit share numbers, or other pertinent property description).
PROMISSORY NOTE TERMS & CHECKLIST
- At a minimum, a promissory note should include the following terms:
- Amount loaned.
- Date of loan.
- Monthly payment amount and due date, or lump-sum due date.
- Interest rate being charged and type of rate. Annual, simple, or compounded interest, etc. Including an amortization table of the interest and payments is helpful to clarify the interest being charged and the payments due.
- Name of borrower. If the borrower is a company, it is helpful to obtain the personal guarantee of the owner(s) of the company.
- The IRA should be listed as the lender (e.g., ABC Trust Company FBO Sally Jones IRA).
- Default clause, stating what constitutes default.
- Acceleration clause, which allows the lender to call the entire note due if the borrower defaults on a payment.
- Attorney’s and collection fees provisions, allowing the lender (“IRA”) to re-coup expenses incurred in collecting on a defaulted loan.
- Place of payment. To a payment processor or escrow company or to the IRA custodian directly.
- Late payment fee/penalty.
- Description of collateral securing the loan (e.g., real estate or equipment) if the loan is secured. A deed of trust or mortgage should be included when the loan is secured by real property. If the loan is secured by equipment or other personal property, the loan is typically secured by a UCC-1 filing.
- If the loan is secured by real estate, obtain a title insurance policy in favor of the IRA (lender) protecting the title position of the deed of trust/mortgage.
- If the loan is secured by real estate, issue lender instructions to the title company or attorney handling the closing.
- Obtain a loan application from the borrower and collect the borrower’s SSN, date or birth, address, employer, income, and assets. This information is vitally important in the event of default as it will assist in collection efforts. It is also helpful in the event that the loan is cancelled as a 1099-C should be issued to the un-collectible borrower.
- Loan document drafting fees and title insurance costs, which protect the lender (IRA), should be paid by the borrower at closing. This is the customary practice of lenders.
- Signature of the borrower and any guarantors to the loan. The lender to a loan typically does not sign the loan.
Tom W. Anderson
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[Mat] is completely devoted to his clients and continually strives to stay abreast of changes and updates in the law. Mat is an unbelievably hard worker and...I don't hesitate to recommend Mat's services to anyone as I know he will take care of them and give them simple, concise, and straightforward solutions to any legal issue they may be facing.
K.M
I am a partner in a law firm in Chicago and I have worked with Mat on my personal real estate and business ventures. Mat has given me practical and wise advice which has helped me make profitable decisions. I highly recommend Mat.
Gary Shumm
Mathew is an excellent attorney, well versed in the Self-Directed IRA market…His ability to distil the complexities of the Self-Directed IRA so that the average person can understand them, and ensure that they don't get "tripped up" is second to none. Anyone interested in this Self-Directed IRA Market would do well to connect with Mathew and learn from the best.
Mat is truly an expert on self directed IRAs, and his book is the one book that every self directed IRA investor should read.
"Mat's book is an excellent resource for self directed IRA owners and their advisors. It is the first of its kind in our industry.
Mat has truly written an“Authoritative Guide” for self directed IRAs."
"Mat is an excellent attorney, well versed in the Self-Directed IRA market...His ability to distill the complexities of the Self-Directed IRA
so that the average person can understand them, and ensure that they don't get "tripped up" is second to none.
"Mat’s book is the most practical and comprehensive self directed IRA guide in our industry. Reading this handbook should be the first step for any alternative asset investor, investment sponsor, or trusted advisor that seeks to become informed about how to maximize the value of IRAs."
"Mat's books is a great reference guide for self-directed IRA investing – Best I’ve seen in 30 years of being in the business."
"The Self Directed IRA Handbook by attorney Mat Sorensen is the most comprehensive book ever written about one of the
best investment and retirement savings tools ever created: the Self-Directed IRA."
J.P. Dahdah
Mat’s book is the most practical and comprehensive self directed IRA guide in our industry. Reading this handbook should be the first step for any alternative asset investor, investment sponsor, or trusted advisor that seeks to become informed about how to maximize the value of IRAs.