How Does An IRA Non-Recourse Loan Work?

Unfortunately, a traditional loan cannot be used for an IRA due to Internal Revenue Code Section 4975 (c)(1)(B). However, a nonrecourse loan can be used in its place instead. So, what exactly is a nonrecourse loan?

A nonrecourse loan is a loan that you don’t personally guarantee. The property purchased with this type of loan is held in the name of the IRA, and all income and expenses associated with the property flow through the IRA. Additionally, the IRA holder cannot use the property for personal use or provide any services related to the property, per IRC Section 4975(c).

Unlike a traditional loan, in a nonrecourse loan, the lender cannot go after the borrower’s personal assets if the loan is defaulted on, and can only seize the property purchased with the loan. Because of the greater risk that the lender takes in this type of loan, the interest rate tends to be slightly higher.

If you’d like to learn more about securing a nonrecourse loan for your IRA, reach out to our team of tax professionals at IRA Financial.

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About IRA Financial:

IRA Financial was founded by Adam Bergman, a former tax and ERISA attorney who worked at some of the largest law firms. During his years of practice, he noticed that many of his clients were not even aware that they can use an IRA or 401(k) plan to make alternative asset investments, such as real estate. He created IRA Financial to help educate retirement account holders about the benefits of self-directed retirement plan solutions.

IRA Financial is a retirement account facilitator, document filing, and do-it yourself document service, not a law firm. IRA Financial Group does not provide legal services. No attorney-client relationship exists between Client and IRA Financial, its management, salespersons or IRA Financial’s in-house legal counsel. IRA Financial Group provides IRA retirement facilitation service and CANNOT provide Client with legal, investment, or financial advice. Prior to making any investment decisions, please consult with the appropriate legal, tax, and investment professionals for advice.

IRA Financial is not engaged in rendering legal, accounting or other professional services. If legal advice or other professional assistance is required, the services of a competent professional person should be sought. (From a Declaration of Principles jointly adopted by a Committee of the American Bar Association & a Committee of Publishers and Associations.). The scope of Professional Services does not include the costs of any custodian related services.

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