Indirect Loan Doesn’t Avoid Ira Limitations


Generally, an IRA beneficiary cannot enter into a loan transaction with the IRA. Per Code §4975(c)(1)(B), the lending of money between a plan and a disqualified person is a prohibited transaction. For this purpose, a “plan” includes an IRA. Code §4975(e)(1).

What if the IRA purchases a preexisting note and mortgage from a bank, on property owned by the beneficiary and other disqualified persons (the beneficiary’s spouse and a trust)? Is this a prohibited loan transaction?

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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