| Element | In your plan |
|---|---|
| The lender | Your plan, acting through its IRA LLC, IRA Trust, or Solo 401(k) trust |
| The return | Interest paid by the borrower, returned to the plan |
| Common security | A deed of trust or mortgage recorded against real property |
| The paperwork | A promissory note setting the rate, term, and repayment schedule |
| Administration | Handled directly, or through a professional note servicer |
Your plan becomes the bank
The appeal of private lending starts with the kind of income it produces. Interest is predictable. A well-written note spells out exactly what the borrower owes, when payments arrive, and what happens if they stop, and that certainty is rare among alternative assets. It is a natural fit for a retirement account, where steady income can compound year after year without a current tax bill. In a taxable account, interest is taxed at ordinary rates as you earn it. Inside a plan, that same interest stays in the tax shelter, working for you until you eventually take distributions, or, in a Roth, potentially never taxed at all.
What can your plan lend on?
The range of loan types is wider than most people expect. Your plan can hold a mid to long-term mortgage secured by real property, a short-term loan to a developer for new construction or a fix-and-flip, or bridge financing that helps an investor lock up a deal before permanent financing comes through. It can lend to a business for expansion or equipment, extend a personal loan, or hold a note secured by a vehicle such as a car, boat, or aircraft. Your plan can also buy an existing note instead of originating a new one, purchasing all or part of it from a broker who has already done the work of finding and vetting the loan. This is often the simpler path for a first-time lender: the note is already written, the borrower already has a payment history, and you are stepping into a deal rather than building one from scratch.
How a loan actually works
The mechanics are simple, and checkbook control keeps them that way. Your plan, acting through its LLC or trust, is the lender on every document. You start with a clear promissory note, ideally drafted by an attorney or note professional so the terms are enforceable and comply with the laws of the state where the loan is made. A secured loan also involves recording a deed of trust or mortgage against the collateral, which puts your claim on public record. You fund the loan directly from the plan's account, the borrower sends payments back to that same account, and when the loan is paid in full, the plan releases the lien so the borrower takes clear title. From offer to payoff, you sign as the manager of the LLC or the trustee of the plan, never in your personal name.
Secured or unsecured?
Most private loans are secured, meaning a real asset stands behind the note. If the borrower cannot repay, the lender has a claim on that collateral, whether it is a property, a vehicle, or another asset of value. That security is a large part of why notes are considered one of the more grounded ways to invest retirement funds. Unsecured loans rest instead on the borrower's creditworthiness and a signed promise to repay, and they typically carry a higher interest rate to reflect the arrangement. The choice between the two comes down to the borrower, the purpose of the loan, and how much security you want behind your plan's money.
Choosing a structure that fits your lending
You have real flexibility in how your plan holds its loans, and the right structure comes down to volume. A simple, steady note portfolio, a handful of performing loans you plan to hold to term, is well suited to an IRA Trust or a Solo 401(k), both of which can lend directly through the plan trust with very little overhead. An IRA LLC adds real value once lending becomes more active: higher note volume, frequent turnover, or work in distressed notes, where liability protection carries more weight. There is no single right answer, only the structure that matches the scale of the lending you intend to do.
A few things worth thinking through first
A little preparation goes a long way. Before funding a loan, it helps to have the deal structure clear in your mind: the rate, the term, the repayment schedule, and what security backs the note. It is worth doing simple diligence on the borrower or partner and the asset securing the note, the way any careful lender would, and confirming that your loan complies with the lending laws of the state where it is made. Keeping every step arm's-length is the one rule to keep in view. Who your plan cannot lend to is a fixed list: you, your spouse, your lineal family, and any entity they control. Those parties are disqualified persons, and lending to them is a prohibited transaction. Staying clear of that line keeps the whole strategy simple.
For anything beyond a couple of static notes, a professional note servicer is often a smart addition. They collect payments, keep records, handle borrower reporting, and stay current on state lending rules, which keeps your note administration clean and lets your plan stay comfortably in the role of passive lender.
Frequently Asked Questions
Can my retirement account really make loans to other people?
Yes. A self-directed IRA or Solo 401(k) can act as a private lender, making loans to individuals, businesses, and real estate investors. The plan itself, through its LLC or trust, is the lender on the note, and all interest is paid back to the plan. This is one of the more established alternative-asset strategies, and it fits naturally with the passive, income-focused goals of a retirement account.
Do I need an LLC to lend money from my IRA?
Not necessarily. A note portfolio can be held in an IRA Trust or a Solo 401(k) trust without an LLC. An LLC becomes worthwhile once your lending is more active, such as higher note volume, frequent turnover, or work in distressed notes, where liability protection becomes a concern. The right structure comes down to the scale of the lending you intend to do.
Can my IRA lend money to a family member?
No. Your spouse, parents, grandparents, children, their spouses, and entities those people control are disqualified persons. A loan from your plan to any of them is a prohibited transaction, regardless of the interest rate or terms. Loans to unrelated individuals, businesses, and investors are where private lending lives.
What keeps a private loan safe if the borrower stops paying?
Security does. Most private loans are secured by a real asset, most often a property, recorded through a deed of trust or mortgage. If the borrower fails to repay, your plan has a claim on that collateral and can pursue remedies such as taking the asset or foreclosing. Recording the security interest puts your claim on public record, which is a large part of why secured notes are considered a grounded way to invest plan funds.
Who draws up the promissory note?
An attorney or a note professional typically drafts the promissory note, and that is the recommended path. A well-drafted note sets the interest rate, maturity, and repayment schedule clearly, and it complies with the lending laws of the state where the loan is made. You sign it on behalf of your plan, as the manager of the LLC or the trustee of the plan, never in your personal name.
How do I get started with private lending in my plan?
Start by choosing the plan structure that fits how you want to lend, then confirm your funding is in place and your account is ready to transact. The Plan Finder can match your lending goals to the right structure. From there, a clear note and, where helpful, a note servicer put your plan in business as a lender.
Next Steps
If lending sounds like a fit, the natural next step is matching it to the right plan structure. The Plan Finder helps you do exactly that.