ment investor would essentially be the same, except the
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investor would need to coordinate the transfer of funds from his or her IRA custodian. This can occur relatively quickly via wire transfer or ACH, as many self-directed
IRA custodians have begun embracing technology at a
greater pace. Any and all subsequent investments would also have to come from the account, and any payments would have to return to the account.
Investors who want to tap the debt market can also
participate via private or public equity investment in
the lender’s entity. They may also buy shares in a fund
of a lending company, if said company were inclined to offer such investments. Keep in mind that retire-
ment account holders may have longer investment time horizons, especially if that account holder is under the
age of 59 1/2. Therefore, IRA investment may give the lender the opportunity to deploy those funds for a longer term.
There are certain IRS stipulations that an IRA holder must follow to take advantage of this investment mod-
el, but they’re hardly inhibitive. Prohibited transactions
Self-Directed IRAs – Untapped Capital with Near-Endless Possibilities By Clay Malcolm, New Direction Trust Company
H
rules generally surround self-dealing between an individual and his or her account. In other words, you could
not borrow money from your own IRA, repay the loan
with interest, and retain the tax benefits of the account on those earnings. Other disqualified persons include lineal family members such as parents, children, and their spouses, as well as any fiduciaries to the retirement account (i.e. someone directly affiliated with your IRA
custodian cannot profit from your IRA’s investments).
Non-lineal family members like siblings, cousins, or
other non-relatives such as friends or business partners are non-disqualified and perfectly able to participate in
ow much or how little an individual per-
debt, but they may not want to originate loans them-
depends on one’s comfort level. Some may
achieve a key mutual benefit.
As long as an investor maintains proper separation be-
contributions to their IRAs, 401(k)s, or health savings
If you’re looking to issue new loans but don’t have the
never conducting IRA business with disqualified per-
professionals. Others who understand that they are pro-
be the answer. You may already try to utilize individu-
sonally controls his or her finances largely
be more comfortable making automatic
accounts and leaving the investment decisions to the fessionals in their own regard may be more inclined to
take the wheel and exercise true control over how their tax-advantaged retirement dollars are invested.
The knowledge that retirement plan holders can invest
their accounts away from Wall Street and into alterna-
tive assets has become more mainstream. As such, some
loan originators have adopted their familiar business
models into their retirement strategies. With a self-di-
rected IRA, you can qualify borrowers and make final
decisions on loan durations and interest rates, all while enjoying the same tax-deferred or tax-free benefits of
Traditional IRAs, Roth IRAs, or other such savings plans. However, some self-directed retirement investors may want to capitalize on a seemingly persistent demand for
14 Originate Report | May 2019
selves. This is where loan originators and investors can
capital on hand to do so, self-directed IRA holders can al investors as a means of replenishing capital for new transactions, but it can be tough to rack up the funds you need from small allocations one person at a time.
This can be frustrating for you as a lender in need of money and for the prospective investor who wants to get involved for more than just a few thousand dollars.
On the other hand, those same people may have five-,
six-, or even seven-figure balances in their retirement accounts, and that money is just as eligible to go to work as loan capital as the money in a person’s wallet.
Someone using non-retirement money might meet with you, agree to terms, and complete whatever paperwork you deem necessary. He or she may then write a check
or transfer funds from a bank account, and the transaction is initiated. The process of onboarding a retire-
an IRA investment.
tween his or her IRA money and non-IRA money while sons, said investor can be a resource of loan capital that you may have never considered. Education-based IRA
providers are making it easier than ever to fund alternative investments with retirement dollars, so now may be the time to get started.
ABOUT THE AUTHOR:
Clay Malcolm is Chief Business Development Officer at New Direction Trust Company, a custodian of self-directed investment accounts that hold alternative investments. Mr. Malcolm provides preliminary and continuing education to anyone interested in promissory notes, real estate financing, and other loan structures as assets in IRAs, 401(k)s, and other such tax-advantaged or taxable investment plans. CONTACT:
cmalcolm@ndtco.com | 877-742-1270(Ext. 113) | www. ndtco.com
