Can I Partner with my IRA?
Investing in real estate can be expensive. For many investors who want to diversify their retirement savings into assets such as rental property, access to capital can be a barrier.
We’re often asked whether it’s possible to combine IRA and personal funds in a joint venture. The concept is promoted on the internet as being possible, and is supported by many self-directed IRA custodians.
But is this strategy really safe, and is it a good idea? Let’s take a deeper look.
Prohibited Transactions and Disqualified Parties
One of the first principals of investing with a self-directed IRA or 401(k) plan is avoiding prohibited transactions as defined in IRC section 4975.
Prohibited transactions occur when there’s any direct or indirect transaction or provision of benefit between a retirement plan and a disqualified party.
Disqualified parties include the IRA account holder, their spouse, lineal family such as parents, grandparents, children and grandchildren, the spouse of a descendant, or an entity such as a business or trust where such a disqualified party has control.
Certain fiduciaries such as investment advisors are also disqualified.
So something like personally lending money to your IRA would be a prohibited transaction that would have severe tax consequences for the IRA.
But What About a Joint Venture?
When some in the self-directed IRA industry speak about the possibility of combining personal and IRA funds, it is generally in the context of a joint venture, where each party is separately and distinctly entering into a transaction.
The idea is that no transaction or benefit is occurring if:
- Both parties enter into a transaction jointly at the point of inception. One party could not complete a transaction and then sell or transfer interest to the other party, as that would create a transaction between the parties.
- The equity participation in the venture is locked in based on the initial funding. If an IRA provided 60% and an individual provided 40%, then all future expenses and income are allocated on this 60/40 basis.
- Neither party can ever buy the other party out.
In such a rigid framework, one could argue that each party to the transaction is separate and distinct, and there are no transactions between the IRA and the disqualified party.
What About Indirect Benefit?
A concern we have always voiced in this context is the risk of indirect benefit.
What if either party is enabled to participate in a transaction that it might not have been able to otherwise because of the presence of the other party? Would this not constitute a benefit?
If one side of the venture was bringing 90% of the capital and the other just 10% there is a real concern. Could that 10% partner, whether the IRA or the IRA account holder, have executed the transaction on a stand-alone basis?
Most probably not. It would be a reasonable argument that the transaction was only available to that minority participant via to the ability to partner, and that could be considered an indirect benefit.
There could also be risk if an IRA and a disqualified party were combining resources simply to be used as a down payment, and then obtaining mortgage financing. The likelihood in such an arrangement that either party could have done the transaction alone is relatively slim.
In a 50/50 split or something close to that, this issue of access becomes less murky perhaps, but not exactly clear.
Take the example of a $200K property purchase. An IRA with $100K available would have the opportunity to purchase the property with the use of a non-recourse mortgage.
It could therefore be argued that it was possible for the IRA to engage in the transaction without access to the personal funds, and the decision to joint-venture was an option, not a requirement. Under those circumstances, there’s no benefit occurring in the form of access to an otherwise inaccessible opportunity.
But would the IRS agree?
What We Don’t Know Equals Risk
The interpretation of tax attorneys and commentary on the internet are one thing. There are certainly some logical arguments that would lead one to believe it may be possible in some circumstances to partner with your IRA.
But these arguments are just theory. Actual language in the tax code, or existing case law are an entirely different matter. A reasonable amount of certainty can be determined from these sources.
The reality is, there is no clear guidance in the code or tax courts on this topic. As such, any transaction of this nature would be somewhat of a voyage into the unknown. In dealing with the IRS, unknown territory is risky territory.
Are You Prepared to Fight?
At the end of the day, the risk of any aggressive transaction with a self-directed IRA is that the IRS may question what you have been doing in an audit. It’s your obligation to prove that your actions with your IRA are in compliance with the relevant laws.
While you may prevail, simply the act of defending your IRA can be a long, stressful, and expensive process.
Are There Better Options?
Our stance on this topic is that you probably should not enter into a joint venture with your IRA. In some circumstances it may be okay, but at what level of risk?
The purpose of a self-directed IRA is to grow your retirement savings. When there are so many ways this can be done that don’t introduce the risk of significant tax penalties, why go there?
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Quick answers to common questions
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
YES! In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (art, jewelry, etc.). Everything else is fair game. IRS CodeSec. 401 IRC 408(a) (3)
It’s actually pretty simple. Early on, regulators let the securities industry take the lead in educating the public about retirement accounts. Naturally, brokers and banks promoted stocks, bonds, and mutual funds—giving the impression that those were the only allowed investments. That was never true... and still isn’t. You can probably guess why they kept the rest under wraps.
It is possible to use funds from most types of retirement accounts:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Keogh
- 401(k)
- 403(b)
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- and many more.
It must be noted that most employer sponsored plans such as a 401(k) will not allow you to roll youraccount into a new Self-Directed IRA plan while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.
A Solo 401(k) requires a sponsoring employer in the format of an owner-only business. If you have a for-profit business activity – whether as your main income or as a side venture – and have no full-time employees other than potentially your spouse, your business may qualify. The business may be a sole-proprietorship, LLC, corporation or other entity type.
A self-directed retirement plan is a type of IRA or 401(k) that gives you greater control over how your retirement funds are invested. Unlike traditional accounts held at banks or brokerage firms that limit you to stocks, bonds, and mutual funds, self-directed plans allow you to invest in a wide range of alternative assets including real estate, private businesses, precious metals, cryptocurrency, and more.
These plans still follow the same IRS rules and maintain the same tax-deferred or tax-free benefits as conventional retirement accounts. The difference is simply in how and where you choose to invest.
No. Moving to a self-directed IRA or Solo 401(k) does not trigger any taxes, as long as your funds are eligible for rollover.
Self-directed retirement plans maintain the same tax-advantaged status as traditional plans offered by banks or brokerage firms. The key difference is flexibility—our plans are designed to give you greater control and allow for a wider range of alternative investments beyond stocks, bonds, and mutual funds.
A prohibited transaction is any action between your retirement plan and a disqualified person that violates IRS rules and can lead to serious tax consequences. Under IRS Code 4975(c)(1), prohibited transactions include:
- Selling or leasing property between your plan and a disqualified person Example: Your IRA cannot purchase a property you already own.
- Lending money or extending credit between the plan and a disqualified person Example: You cannot personally guarantee a loan your IRA uses to buy real estate.
- Providing goods or services between your plan and a disqualified person Example: You can’t use your personal furniture to furnish a rental property owned by your IRA.
- Using plan income or assets for the benefit of a disqualified person Example: Your IRA cannot buy a vacation home that you or your family use.
- Self-dealing by a fiduciary (using plan assets for their own benefit) Example: Your CPA shouldn't loan your IRA money if they’re advising the plan.
- Receiving personal benefit from a deal involving your IRA's assets Example: You can’t pay yourself from profits your IRA earns on a rental.
If a transaction doesn’t clearly fall within the allowed guidelines, the IRS or Department of Labor may review the situation to determine if it qualifies as a prohibited transaction.
Disqualified persons are individuals or entities that are prohibited from engaging in certain transactions with your IRA or 401(k). Doing so could trigger a prohibited transaction, which may result in taxes and penalties.
Here’s who is considered a disqualified person:
- You (the account holder)
- Your spouse
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and their spouses
- Any advisor or fiduciary to the plan
- Any business or entity owned 50% or more by you or another disqualified person, or where you have decision-making authority
These rules exist to prevent self-dealing and ensure your retirement plan remains in compliance with IRS regulations.
(Reference: IRC 4975)
Understanding and following these rules can be tricky, but it’s very doable. The best way to stay compliant is to work with professionals who specialize in self-directed retirement plans. They can help you navigate IRS guidelines and avoid prohibited transactions.
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.
Yes. While self-directed retirement plans allow for a wide range of investments, there are a few important restrictions.
You cannot invest in collectibles or life insurance contracts, and you must avoid prohibited transactions—activities that benefit you personally rather than the retirement plan. These include things like buying or selling property to yourself or family members, using plan assets for personal gain, or self-dealing in any way.
Violating these rules could cause your entire IRA to lose its tax-advantaged status. To protect your account, it’s essential to work with professionals who understand IRS regulations and can help you stay compliant.
This is a common misconception. In many cases, professionals may simply be unfamiliar with self-directed retirement plans, as they fall outside their usual scope of work. CPAs and tax preparers are trained to file taxes, not necessarily to advise on alternative retirement strategies. Financial advisors and brokers often work for firms that focus on traditional investments like stocks and mutual funds—and may not benefit from or support alternative options like real estate or private lending.
Self-directed retirement investing is legal under IRS rules—but like any specialized area, it requires working with professionals who understand how it works.
The IRS has rules in place to make sure your IRA is used only for the exclusive benefit of the retirement account—not for personal gain or to help family members. These rules can get complicated because there are many ways a conflict of interest can occur, even unintentionally.
For example, if your IRA buys a house and rents it to your mother, you might be reluctant to evict her if she stops paying rent. That emotional connection creates a conflict between what’s best for your IRA and your personal relationships, something the IRS aims to prevent.
These rules help ensure your retirement account stays compliant and protected. (See IRC 408)
Yes. Most tax-deferred retirement accounts—such as Traditional IRAs, old 401(k)s, 403(b)s, and TSPs—can be rolled over into a self-directed IRA or Solo 401(k), depending on your eligibility. Roth IRAs cannot be rolled into these accounts.
You can contribute directly from earned income, subject to annual IRS contribution limits. The method and amount depend on the type of plan you have (e.g., Solo 401(k) vs. IRA).
To take a distribution, you'll request funds through your custodian or plan administrator. Distributions may be taxable depending on your account type and age. Early withdrawals may be subject to penalties.
For 2025, the Solo 401(k) max contribution limit is $81,250 if age 60-63, $77,500 if age 50-59 or 69+, and $70,000 if under 50. Traditional and Roth IRAs have a limit of $7,000 ($8,000 if age 50+). Limits are subject to IRS adjustments.
Yes. IRA contributions are typically due by your personal tax filing deadline (e.g., April 15). Solo 401(k) contributions follow your business tax filing deadline, including extensions.
IRS reporting requirements vary depending on the type of self-directed retirement plan you have. Here’s a quick breakdown of what you need to know
Please note: Our team can help you understand what’s required for your specific account, but we don’t provide tax or legal advice. We always recommend working with a qualified tax professional to ensure full IRS compliance.
Self-Directed IRA (Traditional or Roth)
- Form 5498 – Filed by your custodian each year to report contributions, rollovers, and the fair market value (FMV) of your account.
- Form 1099-R – Issued if you take a distribution or move funds out of your IRA.
- Annual Valuation – You'll need to provide updated FMV for any alternative assets held in the account, such as real estate or private placements.
Solo 401(k)
- Form 5500-EZ – Required if your plan assets exceed $250,000 as of year-end. Must be filed annually by the plan participant.
- Form 1099-R – Required if you take a distribution or roll funds out of the plan.
- Contribution Tracking – Keep records of employee and employer contributions. These are not filed with the IRS but may be needed for tax reporting or audits.
SEP IRA
- Form 5498 – Filed by your custodian to report contributions and FMV.
- Form 1099-R – Filed by your custodian. Issued for any distributions.
- Employer Contributions – Must be reported on your business tax return (and on employee W-2s, if applicable).
Health Savings Account (HSA)
- Form 5498-SA – Filed by your HSA custodian to report contributions.
- Form 1099-SA – Filed by your HAS custodian. Issued for any distributions.
- Form 8889 – Must be included with your personal tax return to report contributions, distributions, and how funds were used.
