Using Your IRA To Loan Money Or Finance A Business

Once again in the category of terrible things you can attempt to do with your IRA, there is the concept of a “cross loan” from your IRA to another, unrelated party.

You know from previous articles that it’s not allowable to transact business with disqualified persons.  Therefore, you can not take a loan from your IRA to finance your business.  But what if you came to an agreement with someone else not related to you in any way, who is not a disqualified person, to loan money from your IRA to finance her business, while she loans money from her IRA to finance yours?  Whatever could go wrong with this?

While the technical provision of transacting business with a disqualified person has been avoided, there’s a small problem with the plan.  There is another test that prohibits the IRA owner from receiving an indirect benefit from a transaction.  In the case of the cross loans, there is an indirect benefit in that one loan facilitates the other – and the IRS would figure this out before you could say “Bob’s your uncle”.

Entering into such a series of loans would most likely result in both IRAs being disqualified and taxable immediately.  It should be noted that this would likely be considered a prohibited transaction if the second loan was from another source besides an IRA, since the indirect benefit would still have come into play.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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  • Laura,

    I would not recommend this course of action, as it likely would be considered a prohibited transaction (just my opinion).

    The sale of the property wouldn’t be prohibited, and the loan itself wouldn’t be prohibited, but when one action facilitates the other, I’d think the IRS would consider the second action to be prohibited.

    Hope this helps –


  • 1) I own 50% of a building in my IRA. IRA financed the 50% purchase with a non-recourse note and cash from IRA. IRA has owned building interest since 2006 and trustee holds for IRA.

    2) I financed a business that is housed in the building with a personal loan.

    3) business and building are for sale. Have offer to purchase both but buyer needs cash infusion.

    4) I have a second IRA. The purchaser has a business unrelated to the purchase of the building and business being sold.

    5) Can the second IRA loan the unrelated purchaser’s business money? The second business would pay back the note to second IRA. The second business is unrelated to the sale at hand.

    6) Purchaser will infuse the cash from second IRA loan into the purchase of business and or building.

    Can the second IRA make such a loan to a business?

    I appreciate your opinion.

  • Sorry, Heidi –

    The IRS is a big, slow government entity, but they’re not stupid. The option you’re talking about is known as a cross-loan, and since you are receiving an indirect benefit from the loan made to your friend, that is, you’re getting a loan in return, this kind of transaction is prohibited.

    See this article on IRA Cross Loans for more information.


  • If I made a loan from my IRA to a friend to buy a piece of property, and I took a loan from his IRA to put money into that same piece of property, if we’re not disqualified persons, is there a problem with that?

  • Dennis –

    It may be possible in a stretch of the rules to the utmost limit, but I would recommend against it. Although the S Corp isn’t a disqualified person, if your son is the sole owner of the S Corp then technically you’re loaning the funds to him or at the very least for his benefit – both of which are prohibited.

    Hope this helps –


  • I can I loan money to a business an s corp…which is owned by my son, but would be secured with a second mortgage?

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