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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, 1999IRC § 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 PropertyMulti Family Rental Property
Commercial Real EstateRaw Land
Contractual Interest in Real EstateTenant In Common Interest In Real Estate
Water RightsMineral Rights, Oil and Gas
Real Estate DevelopmentTax Liens
LLC Membership Interest in the business of real estate, technology, manufacturing and other service businessesLimited Partnership Interest (“LP”) in the business of real estate, technology, manufacturing and other service businesses
Corporation, C corp, in technology, manufacturing and other service businessesGeneral Partnership Investment In Real Estate
Joint Venture Investment in Real Estate and numerous other industriesReal Estate Loan, Promissory Note and Deed of Trust/Mortgage
Restaurant partnership business.Business Loan, Secured by Equipment/Assets of Business
Loan/Promissory Note Un-SecuredPurchase of Livestock
Gold, Silver, and other precious metalsIRA/LLC
Hedge Funds InvestmentsPrivate Placement Companies
Intellectual Property Patent InterestPrivate Placement Memorandum Investments
Stock Options and WarrantsNon-Publicly Traded Company Ownership

CAN I TRANSFER/ROLLOVER TO A SELF DIRECTED IRA?

SituationTransfer/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

Self Directed IRA Basics: What is a Self Directed IRA? What Can a Self Directed IRA Invest Into? What is an IRA/LLC?

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.

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Tom W. Anderson

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. Mat has performed the impossible by effectively delivering complex information in an easily understandable manner for the layperson, while providing the necessary legal basis to suit the professional. Mat's book is a "must read" for investors, attorneys, CPAs, and other professionals and other interested individuals wanting to learn about all there is to know about Self-Directed IRAs.

Tom W. Anderson
President, RITA, and Founder and Vice Chairman / PENSCO Trust Company

Harry Veldkamp

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.

Harry Veldkamp
CEO, Polycomp Trust Company

Pamela Constantino

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.

Pamela Constantino
President, Polycomp Trust Company

Mark J. Kohler

Mat is truly an expert on self directed IRAs, and his book is the one book that every self directed IRA investor should read.

Mark J. Kohler
CPA, Attorney, Author

Richard Davis

I was referred to Matt for help in setting up an IRA owned LLC. Matt and his team did an incredible job completing the work in a few short days. The process was professional, efficient and cost effective. I continue to rely on Matt for guidance running the LLC and related real estate matters. Not only is Matt a good lawyer, he runs a great office. It is easy for me to recommend Matt and his team.

Richard Davis

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We have used Matt for many legal matters and he always comes through with shining colors. I highly recommend Matt for any legal or tax matter.

Christine Farkas
Real Estate Broker & Investor

Jennifer Cayton

Mathew is the legal partner for the majority of my clients. Matthew provides solid legal advice, precise strategic planning, appropriate corporate structure development, and is readily available to consult with his clients on all legal and business manners. Matthew is well respected and has an extremely large network in the successful real estate investor world. Matthew is reliable, professional and an all around great partner to have on your side

Jennifer Cayton
CFO Consultant / Premier Accounting and Financial, Inc.

Bill Sthay

I have retained Mathew Sorensen several times for multiple real estate deals and have been very pleased with his efforts and work product and will continue to use him in the future.

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Real Estate Investor

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My wife and I recently sought Mat's help with estate planning and couldn't have been more satisfied. Mat's professionalism, honesty, creativity and attention to detail is second to none. What impresses me the most about Mat can be summed up as "diverse". Mat's vast knowledge and experience in a plethora of differing areas of the law is astounding. I highly recommend Mat to my clients and friends seeking legal help.

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Owner / Creamer Insurance Agency, Inc.

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CFO / Authentic Property Investors

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Owner / Griffin Investment Properties

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Treasurer / Jacobs Construction, Inc.

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Mathew Sorensen is a great resource and I use him consistently for real estate law questions. He is a wealth of information and will always give you a great knowledge base. I have been using KKOS for a while now and am very impressed and happy with their services.

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CPA, Real Estate Investor

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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.

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Chief Legal Officer / Stake Center Locating

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.

K.M.
Attorney & Real Estate Investor

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.

Gary Shumm
Vice President / IRA Services Trust Company

Mat is truly an expert on self directed IRAs, and his book is the one book that every self directed IRA investor should read.

Mark J. Kohler
CPA, Attorney, Author / MarkJKohler.com

"A must-read for any self-directed IRA investor."

Kaaren Hall
President / uDirect IRA Services

"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."

Pamela Constantino
President / Polycomp Trust Company

"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.

Gary Shumm
Vice President / IRA Services Trust Company

"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."

J.P. Dahdah
CEO / Vantage Self Directed Retirement Plans

"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."

Harry Veldkamp
CEO / Polycomp Trust Company

"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."

Tom Anderson
Founder and Retired CEO, PENSCO Trust Company

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.

J.P. Dahdah
CEO, Vantage Self Directed Retirement Plans

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