Self-Directed IRA Promissory Note Investments
Grow your retirement savings through secured lending.
Self-directed IRA promissory note investments allow you to lend money from your retirement plan to borrowers and earn money on the interest. Investing in promissory notes is a great way to earn passive income in real estate without taking on the hassle of managing a property or selling a property.
Promissory notes provide lots of flexibility to decide where you want to invest your money and can be combined with the tax advantages of a retirement plan to create a reliable path to meeting your retirement goals.
Notes can be secured (backed by collateral) or unsecured (not backed by collateral), depending on your investing strategy.
You can use any self-directed account with Horizon Trust, including Traditional and Roth IRAs, SEP IRAs, SIMPLE IRAs, and Solo 401(k)s, to start investing in promissory notes.
Why Invest in Promissory Notes with a Self-Directed IRA
- Steady, predictable income: Earn fixed interest payments for a set term, creating dependable cash flow inside your IRA.
- Tax-advantaged growth: Interest income grows tax-deferred (Traditional IRA) or tax-free (Roth IRA).
- Collateral-backed security: Loans can be secured by real estate or other tangible assets to protect your investment.
- Diversification: Add stability to your retirement portfolio by stepping outside the volatility of traditional markets.
Secure Your Retirement Capital with Asset-Backed Lending
Many promissory notes are secured by real estate or other collateral, adding an extra layer of protection to your investment strategy.
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What Exactly Are Promissory Notes?
A promissory note is a debt instrument that allows one individual or entity to loan money to another individual or entity.
The note contains all of the information about the loan, including the amount, the repayment schedule, the interest rate, the maturity date, and the issuer’s signature. In a self-directed IRA, your account acts as the lender, and your retirement account provides the funds for the loan.
The borrower repays the loan with interest to your IRA, where all earnings remain within the plan.
Types of Promissory Note Investments in a Self-Directed IRA
Secured Notes (Real Estate or Asset-Backed)
Unsecured Business or Personal Loans
Mortgage Notes and Trust Deeds
Bridge or Hard Money Loans
Convertible Notes for Startups
Invest in Promissory Notes with a Self-Directed IRA in 4 Easy Steps
Horizon Trust makes it easy to set up and maintain a Self-Directed IRA.
At Horizon Trust, we believe in turning dreams into reality. Founded by Greg Herlean, who has masterfully managed over $1.3 billion in real estate transactions, our mission is to empower you to take control of your financial destiny using the tax-free advantages of a Self-Directed IRA. Retire wealthy.
Here’s how it works:
STEP 1
Open and Fund Your SDIRA
Work with Horizon Trust to establish and fund your account.
STEP 2
Identify a Lending Opportunity
Conduct due diligence to choose a borrower, set interest rates, and define loan terms.
STEP 4
Submit for Custodian Review
Horizon Trust will ensure compliance before funds are issued from your IRA.
Receive Payments: All loan payments and interest go directly back into your SDIRA, preserving tax advantages.
STEP 3
Draft the Promissory Note
Include payment schedules, collateral details, and default terms to create loan terms.
Disclaimer
Horizon Trust Company is an independent passive Custodian and is not associated or affiliated with and does not recommend, promote or advise any specific investment, investment opportunity, investment sponsor, investment company or investment promoter or any agents, employees, representatives or other of such firms or entities. Investments are not FDIC Insured, offer no bank guarantee and may lose value.
Proven Success. Trusted Leadership. Real Impact.
At Horizon Trust, we make it simple to open and manage a Self-Directed IRA, so you can take control of your retirement on your terms. Founded by Greg Herlean, who has overseen more than $1.3 billion in real estate transactions, Horizon Trust was built by someone who understands what self-directed investors need: personalized service, fast transactions, and a custodian that stays out of your way.
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Learn About Self-Directed IRA Promissory Notes
What is a Secured Loan?
A secured loan is a loan with some sort of collateral to protect the lender from any potential default by the borrower. While the note serves as a promise to pay, most lenders want added protection in the event of default.
Secured loans can provide the lender with several forms of collateral, including real estate. If the borrower defaults, you can initiate the foreclosure process to assume ownership of the property.
What is an Unsecured Loan?
Unsecured notes are loans that do not have collateral. If the borrower defaults on the loan, you have very little available recourse. One problem with unsecured loans in a self-directed IRA is that self-dealing is forbidden, so offering an unsecured loan to somebody you trust to make payments may be difficult or unwise.
What is a Deed of Trust?
Unsecured notes are loans that do not
A trust deed or deed of trust is a deed wherein legal title in real property is transferred to a trustee, who holds it as security for a loan (debt) between a borrower and lender. The borrower is referred to as the trustor, while the lender is referred to as the beneficiary of the trust deed.
Trust deeds differ from mortgages in that trust deeds always involve at least three parties, where the third party holds the legal title. In contrast, the mortgagor gives legal title directly to the mortgagee in the transaction of a mortgage. In either case, the equitable title remains with the borrower.
A trust deed has a crucial advantage over a mortgage. If the borrower defaults on the loan, the trustee has the power to foreclose on the property on behalf of the beneficiary. In most U.S. states, a trust deed (but not a mortgage) can contain a special “power of sale” clause that permits the trustee to sell the property if the homeowner defaults on the loan.
collateral. If the borrower defaults on the loan, you have very little available recourse. One problem with unsecured loans in a self-directed IRA is that self-dealing is forbidden, so offering an unsecured loan to somebody you trust to make payments may be difficult or unwise.
Key Rules for Promissory Note Investing with a Self-Directed IRA
Promissory notes are highly regulated within a self-directed IRA, so it’s essential to maintain proper compliance to avoid penalties. Some key requirements investors need to be aware of include:
No Self-Dealing
You cannot lend to yourself, family members, or any disqualified persons.
Keep All Transactions Within the IRA
All interest and principal payments must go directly to the IRA.
Maintain Arm’s-Length Terms
The borrower must be independent and the loan must be commercially reasonable.
Avoid Prohibited Investments
Notes tied to collectibles or life insurance are disallowed.
If your note involves leverage or generates unrelated business income, UBTI (Unrelated Business Taxable Income) rules may apply. Always consult a tax advisor before investing.
How to Rollover or Transfer Funds into a Promissory Note SDIRA
Horizon Trust makes it easy to start investing in promissory notes with your self-directed retirement plan.
Customers switching over from an existing retirement plan can complete a direct transfer if they are like accounts (e.g., Traditional IRA to Traditional SDIRA) or a rollover if moving over from two different accounts. Transfers are direct and tax-free, and rollovers can be completed through Horizon Trust as a direct rollover or as an indirect rollover, where you will take control of your funds and have 60 days to deposit the money.
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