My aunt recently retired and transferred her retirement to a Merrill lynch account. She is going to loan me money for a real estate purchase. Could this be done in a self directed account?
Loans may certainly be made from self-directed IRAs, including those secured by real estate. This is an everyday occurrence at Quest IRA, Inc. The only word of caution I want to give you is to be aware of the prohibited transaction rules. There are a list of persons with whom an IRA is not permitted to do business, called “disqualified persons.” Fortunately, you would NOT be a disqualified person as to your aunt’s IRA. However, your aunt should be aware that a benefit to a person in whom she has an interest which would affect her best judgment as a fiduciary for her IRA may be deemed to be an indirect benefit to her, in which case the IRS might argue that it was a prohibited transaction if they ever audited her account. At a minimum you should be sure that the loan is on commercially reasonable terms.
Unfortunately, a full discussion of the prohibited transaction rules is not possible in a short email. The good news is that we have tons of articles and other materials on various topics related to self-directed IRAs on our website at www.QuestIRA.com. Also, you may contact either Nathan Long in our Houston office at extension 3574 or Ryan Kimura in our Dallas office at extension 3584 if you want to have a fuller discussion. Either of them can provide you with the necessary materials for your aunt to open an account. Good luck with your investing, and I wish you a happy, healthy and prosperous 2011!