Private Lending With a Self-Directed IRA: How to Be the Bank (2026 Guide)

What is private lending with a self-directed IRA?

Private lending with a self-directed IRA means the retirement account itself acts as a lender. The account extends a loan to a borrower, the borrower signs a promissory note, and the payments flow back into the account. The note is held as an asset of the IRA, the same way another account might hold a rental property or precious metals.

Most retirement accounts never do this for one simple reason. The big-name account providers only offer stocks, bonds, and funds, so most savers have never heard that anything else was on the menu. A self-directed IRA or Solo 401(k) opens that menu up, with IRS rules setting the boundaries.

How big is private lending right now?

 Bigger than most people guess. Industry estimates put U.S. private lending at roughly $70 to $80 billion in annual loan volume, about double the level of 2020, with more than 10,000 private lenders operating nationwide. Typical private real estate loans run short, often 9 to 24 months, and are frequently secured by the property itself.

Now set that against the retirement side of the ledger. ICI, the industry body that tracks retirement accounts, reported a record $49.1 trillion in total U.S. retirement assets at the end of 2025, with $19.2 trillion of it sitting in IRAs. The overwhelming majority rides the public markets. Self-direction is how some account holders point a portion of that money at assets they understand, like real estate secured notes.

What is a promissory note?

 A promissory note is a written promise to repay a loan. It states the amount, the interest, the payment schedule, and the maturity date. Both sides agree to the terms up front, in writing.

Notes come in two basic flavors. A secured note is backed by collateral, often real estate, which gives the lender a claim if the borrower stops paying. An unsecured note is backed only by the borrower's promise. Self-directed accounts can hold either kind, and the difference matters enough that it deserves a conversation with your own professionals before anything gets signed.

What do the IRS rules allow, and what do they block?

 The guardrails live in Internal Revenue Code Section 4975, the prohibited transaction rules. The short version: a self-directed IRA cannot do business with "disqualified persons." That list includes the account holder, their spouse, parents, grandparents, children, grandchildren, and companies those people control.

So the account cannot lend to you, your mother, or your own business. A borrower outside the disqualified persons list, such as a local real estate flipper or an unrelated business owner, is a different situation under the rules.

One more rule that trips people up: the money path. Every dollar the account lends must leave from the account, and every payment must return to the account. Nothing passes through anyone's personal checking account along the way. Breaking these rules can cost the account its tax-advantaged status, which is why careful people study the guardrails before they act.

What does an administrator like Mountain West IRA actually do?

 Mountain West IRA is a self-directed IRA and Solo 401(k) administrator based in Boise, Idaho. As an administrator, we do not sell loans, do not pick borrowers, and do not give investment, tax, or legal advice. Account holders make their own decisions and work with their own professionals.

What we do is make the account work: we handle the paperwork to open and fund the account, process the lending documents the account holder directs, hold the note as an asset of the account, and keep the records straight so the account stays inside the lines. Education is the other half of the job, which is why this blog, our YouTube channel, and our newsletter exist.

How does someone get started?

 The process is shorter than most people expect. First, open a self-directed IRA or Solo 401(k). Second, fund it through a transfer from an existing IRA, a rollover from an old employer plan, or new contributions. For 2026, the IRS set the IRA contribution limit at $7,500, with an extra $1,100 catch-up at age 50 and up, and Solo 401(k) employee deferrals at up to $24,500. Third, the account holder chooses a borrower and terms, and directs the administrator to process the loan documents. From there, payments flow back into the account.

Every situation is different, and the rules carry real consequences. Before making any decisions, check with your own financial advisor about your specific situation.

FAQ

Can I lend money from my self-directed IRA?

 The account can lend, and that distinction matters. A self-directed IRA can extend loans to borrowers who are not disqualified persons under IRS rules. The IRA is the lender of record, the note is an asset of the account, and all payments return to the account.

Who counts as a disqualified person for IRA lending?

 The account holder, their spouse, parents, grandparents, children, grandchildren, and businesses those people own or control. IRC Section 4975 blocks the account from lending to anyone on that list.

What is a promissory note in a self-directed IRA?

 A written promise to repay a loan, spelling out the amount, interest, payment schedule, and due date. When a self-directed IRA makes the loan, the account holds the note as one of its assets.

What is the difference between a secured and an unsecured note?

 A secured note is backed by collateral, often real estate, which gives the lender a claim if the borrower defaults. An unsecured note is backed only by the borrower's promise to pay.

What happens to the payments the account receives?

 Loan payments flow directly back into the IRA or Solo 401(k), and the account keeps its tax-advantaged treatment. How that treatment works depends on the account type, so tax questions belong with your own tax professional.

Does Mountain West IRA pick or approve the loans?

 No. As an administrator, Mountain West IRA does not choose borrowers, evaluate deals, or give advice of any kind. Account holders direct their own accounts, and we process the paperwork and maintain the records.

Can a Solo 401(k) hold promissory notes too?

 Yes. Self-directed Solo 401(k) plans can hold private loans under the same prohibited transaction guardrails, and for 2026 they allow employee deferrals up to $24,500.

How much can I put into an IRA in 2026?

 The IRS set the 2026 IRA contribution limit at $7,500, plus a $1,100 catch-up for those 50 and older. Contribution rules depend on income and circumstances, so check with your own financial advisor about your specific situation.

Ready to take more control of your retirement? Mountain West IRA can help you open a Self-Directed IRA or Solo 401(k), so you can invest in what you know best.

📞 Call us at 866-377-3311

📅 Schedule your free consultation: https://outlook.office365.com/book/MountainWestIRA@mwira.com/?imsaljsauthenabled=true

You can explore our educational content on our YouTube channel and visit our Blogs Page.

https://www.youtube.com/@MountainWestIRA & https://www.mountainwestira.com/blog

If this topic sparked questions, reach out to our team. We are here to help you understand the rules, the process, and how self-directed retirement accounts work.

Not investment, tax, or legal advice. Check with your own financial advisor about your specific situation.