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promissory note

Promissory Note

Overcoming the Challenges

Self-Directed IRAs provide a direct line of focus to tap into $26 Trillion in retirement savings. Instead of investing in typical publicly-traded assets, investors can use their IRAs or 401(k)s to invest outside the stock market.

Notes are one extremely popular “alternative asset” class that investors use. Your IRA can be the bank and lend money, secured or unsecured. Your IRA can also invest in performing and non-performing paper.

What if your IRA doesn’t have enough to invest in an entire note? What if you want to partner with someone else to purchase a note? Buying a fractional interest in a note is not a problem. The trick is to produce a document showing that the IRA is getting its pro-rata interest in the note.

So, the note would have to show that the IRA is either issuing a note or it is purchasing someone’s interest in a note. There would need to be a purchase agreement between the seller of the note (or their interest in the note) and the buyer of the note.

There is nothing wrong with it. The challenge is in just creating the purchase agreement and showing titling of the note.

Getting started with a Self-Directed IRA can be as easy as 1-2-3

  1. Open an account
  2. Fund that account
  3. Invest

Keep in mind that all expenses of the note investment need to be paid for by the IRA. You can collect the payments (made payable to the IRA) but you cannot do much more. If you need to collect on a bad debt you’ll need to have your IRA hire a debt-collection company or note servicer. We do the tax reporting and record-keeping on your IRA but no Self-Directed IRA provider services notes so the use of a third-party servicer is often helpful.

If you have questions about Self-Directed IRA investing please call us at uDirect IRA Services at (866) 447-6598.

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