Trust Deeds & Mortgages
Trust Deeds and Notes
Many self-directed IRA investors choose to put their money to work in various forms of private lending transactions. Being the bank can be a great way to hold a secure asset that produces consistent returns over time. As with real estate investing itself, there are many types of lending transactions that one can engage in with a self-directed IRA or Solo 401(k) plan, and various considerations one should make in determining if and how to approach these types of opportunities.
Why Invest in Notes?
Notes come in many forms, but for the most part represent a contract for a borrower to pay a lender both a return of principal and interest for access to capital. Most notes are secured by an underlying asset pledged as security by the borrower, though a note may be unsecured. That underlying security is the lender’s hedge against the borrower’s potential failure to repay the loan, and generally what makes private lending one of the more secure types of investments. This is especially true when the security is a real asset like property. If the borrower fails to meet their contractual repayment obligations, the lender has several remedies including taking the property in lieu of payment or foreclosing on the property.
Notes are appealing for many reasons, including the security provided as well as generally predictable return on investment. Notes are also relatively simple to administer, and it is easy to invest in notes while remaining compliant with IRS guidelines that apply to IRA and 401(k) plans.
Acquiting Notes
There are two main approaches to acquiring notes for your self-directed IRA or Solo 401(k) plan; the plan can originate the loan directly with a borrower, or you can go through a note broker to acquire notes (in whole or in part) they have originated.
A common strategy for real estate investors is to network within their local investor community and find suitable borrowers to lend to. This may include attending local real estate clubs or meetups as well as conversations with real estate agents and title companies. There are always folks out there creating good real estate deals that need capital to come to fruition. This type of direct lending with your plan can put you in greater control of the whole lending process; selecting the borrower, performing your own diligence on the borrower’s project and business plan, and negotiating the terms of the loan. Of course, one investor’s idea of flexibility and control may be viewed as a burden by another investor. Such control comes with the responsibility to actually do all the work necessary to ensure the success of your venture.
Investors who may not have the time or expertise to underwrite their own loans often choose to seek out a loan broker. There are many professionals throughout the country that source and sell various forms of notes. In this case, the investment opportunity is prepared and delivered by the provider, and you simply need to execute the contracts on behalf of your plan. Of course, thorough diligence is still required, and you will want to be sure you are dealing with reputable parties, check references, ensure that you see properly recorded note documents, and perhaps even confirm the property or other asset securing the note. In this type of note investment, you can step into someone else’s successful business model and minimize your involvement to some degree. Of course, such note brokers need to be compensated, and this will generally reduce your potential income as the broker takes their cut in some fashion.
Compliance consideration
Whenever investing with your checkbook IRA LLC or Solo 401(k) plan, you need to keep the IRS rules in mind. This means executing all transactions in a manner that is exclusively for the benefit of the plan, and avoiding any self-dealing or dealing with disqualified parties.
There are basically two key concerns with lending. Don’t lend in any fashion directly or indirectly to a disqualified party such as yourself, close family, or family held entities like businesses or trusts. Make sure your loan complies with the lending laws of the state where the loan takes place. This latter concern is not specific to the IRA, but simply a general issue for all lending transactions.
In addition to these primary considerations, you will also want to ensure that your plan meets any necessary obligations with respect to borrower documentation. Depending on the nature of the loan, this may include pre-loan disclosures, reporting of interest payments such as a 1098 filing, and the like.
Another concern is licensing. In many states, there are restrictions on who may act as a lender or certain licensing requirements to act as a lender. Many factors such as the type of loan, number of loan transactions, etc. may impact licensing requirements. Be sure to consult with a licensed legal professional familiar with the laws of your state.
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In Summary
Add relatively secure assets with consistent returns. If you have an interest in exploring the concept of investing in notes with retirement funds, please feel free to contact us. One of our expert advisors will be happy to evaluate your specific situation and goals and provide appropriate guidance. Investor education is our top priority.
Disclosures
As with any investment, there is risk associated with investing in notes and other lending transactions. Before investing, you should ensure you have the financial ability and experience to gauge and understand the risks, perform the necessary diligence, and properly administer such investments in compliance with both state lending laws and the federal tax code relating to IRA and 401(k) retirement plans.
Safeguard Advisors, LLC is not an investment advisor or provider, and does not recommend any specific investment. We provide properly structured self-directed retirement plan platforms that provide you as the investor with full control over investment decisions. The information above is educational in nature, and is not intended to be, nor should it be construed as providing tax, legal or investment advice.
Notes Come in Many Flavors
There are many types of lending transactions that may be engaged in with self-directed retirement funds. Some of the more common examples include:
- Mid-to-long term mortgages secured by real property
- Short-term mortgages to real estate developers, such as for new construction or fix-and-flip deals
- Bridge funding, such as for earnest money or seed capital necessary to secure a deal prior to obtaining long term financing
- Loans to businesses for expansion, equipment purchases, and the like
- Personal loans to individuals
- Loans secured by vehicles like automobiles, boats, or airplanes
- Note funds
Diverse Investment Choices
Flexible Investment Strategies
Tax Advantages
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Expert Guidance
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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.
