SDIRA Experience?

October 09, 2025

by a searcher from University of Georgia in St. Louis, MO, USA

I learned today that you can convert a traditional IRA to a self-directed IRA and then make private investments. I'm thinking of converting mine so that I can loan money to my business to pay off the remainder of our 7a loan - it redirects the interest to me vs the bank and obviates the PG. Does anyone have experience doing some thing like that? Any watch-outs?

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Reply by a searcher
from University of Georgia in St. Louis, MO, USA

Thanks for sharing, Steve. I talked to an SDIRA custodian today who said that something changed to make it possible to do what I'm describing. I'm just trying to make sure that I don't do something dumb...

Reply by a searcher
in United States

No don’t have any experience but got curious myself so asked ChatGPT and here’s what it explained FWIW --- ### 💡 What You’re Describing You’re essentially talking about: * **Rolling over or converting** your existing Traditional IRA into a **self-directed IRA (SDIRA)** — which allows investments in nontraditional assets (like private companies, real estate, or loans). * Then having that SDIRA **loan money to your own business**, with the goal of using those funds to pay off your SBA 7(a) loan and redirect interest payments back to your retirement account. --- ### ⚠️ The Big Watch-Out: “Prohibited Transactions” Under **IRS Code §4975**, this setup almost certainly triggers what’s called a *prohibited transaction*. The IRS prohibits an IRA from engaging in transactions with certain *disqualified persons*, including: * You (the IRA owner) * Your spouse * Your lineal family (parents, children, etc.) * Any business you own (in most cases) So if your IRA lends money to **your own business**, it’s seen as **self-dealing** — using retirement assets for your personal benefit. 👉 **Result:** The entire IRA can lose its tax-advantaged status **immediately**, and the full value is treated as a taxable distribution (plus a 10% early withdrawal penalty if you’re under 59½). That can be financially devastating. --- ### 🧾 Alternative Options If you want to use retirement funds to invest in your own business, there *are* legal ways, but they’re more complex: #### 1. **ROBS (Rollover as Business Startup) Structure** * Lets you roll over a 401(k) or IRA into a new C corporation’s 401(k) plan. * That plan then buys stock in your company, providing operating capital. * It must be set up *very carefully* by a specialist to comply with ERISA and IRS rules. * You must operate as a **C Corp**, not an LLC or S Corp. It’s legal but **heavily regulated** and scrutinized by the IRS, so only worth pursuing if the payoff is significant and you use a reputable ROBS administrator. #### 2. **Third-Party Private Lending** If you want to earn interest with your SDIRA, you can: * Use it to make **private loans** — just not to yourself or your business. * Commonly used to lend to real estate investors, startups, or other third-party entities. * Must be fully arm’s-length with no personal benefit.

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