Investing in Private Notes with a Self-Directed IRA
Some investors like owning buildings. But buildings are big, they’re high-maintenance, and they can be complicated. Other investors prefer something simpler. That’s where private notes come in. Instead of buying real estate, you become the lender—collecting payments, earning interest, and letting someone else handle the property. And when you do it inside a Self-Directed IRA, those interest payments grow in a tax-advantaged account designed for your future. It’s a flexible, often overlooked way to build retirement income. But it comes with a few things to understand before you jump in.
How Private Notes Work Within Self-Directed IRAs
A private note is just a loan between two parties. You, the investor, provide the capital. The borrower repays it over time—typically with interest. That note can be secured by real estate, business assets, or simply be based on an agreement between you and the borrower. When it’s secured, it’s often referred to as a promissory note backed by collateral. If it’s unsecured, you’re relying solely on the borrower’s promise to pay.
In either case, the appeal is clear: predictable income. You agree to the terms up front—interest rate, repayment schedule, duration—and then collect payments over time. You’re not watching the stock market or guessing what a property might rent for. It’s a set agreement, with a set return.
Why Investors Use a Self-Directed IRA for Private Notes
When you hold a private note inside a Self-Directed IRA, all the interest income stays inside the account. That means it grows tax-deferred—or tax-free, if you’re using a Roth. Instead of receiving payments personally and reporting them as income, your IRA receives them. Over time, that can make a big difference in how much you keep, because the tax protections on those payments can add up over time. It may feel “invisible” at first, but that’s the magic of compound investing.
You also have control over the terms. You choose who to lend to. You choose the amount, the collateral, the timeline, and the repayment structure. That level of flexibility is one of the main reasons experienced investors use notes as part of their broader retirement strategy.
That said, there are rules. You can’t loan to yourself or close family members. You can’t use IRA funds to help your business directly. And any repayments have to go straight back into the IRA—not into your personal checking account. Everything has to stay arm’s length to protect the account’s tax-advantaged status.
Getting Started With Notes in a Retirement Account
The first step is deciding whether this strategy aligns with your goals. If you’re comfortable evaluating deals or working with professionals who do, notes can be a strong source of passive income. Some investors even specialize in lending—treating it as their primary retirement vehicle.
Once you’ve opened a Self-Directed IRA with a qualified custodian, you can start identifying lending opportunities. These might come from real estate investors looking to fund a flip, small business owners seeking capital, or individuals offering secured collateral. Just make sure the terms are clearly spelled out, and that you understand the borrower’s risk profile.
Over time, a portfolio of notes can act like a personal lending business inside your IRA. Payments come in, balances grow, and you can reinvest as loans are repaid. It’s a strategy that rewards diligence, clear agreements, and smart risk management.
Want to find out if private notes are the right fit for your Self-Directed IRA? Contact TurnKey IRA at 844-8876-IRA (472) for a free consultation. Download our free guide or visit us online at www.turnkeyira.com.
