Private Debt Investing with an Equity Trust Self-Directed IRA: Frequently Asked Questions

It is possible to invest in private debt using a self-directed IRA or other account. Equity Trust makes the process easy, but there are a few things to be aware of if you’re not familiar with private lending in a retirement account.

Frequently asked questions about investing in private debt in an Equity Trust self-directed account

Q: What are the rules related to investing in private debt (a promissory note) using my retirement account?

A: Some important rules to remember about lending within your qualified account:

• You are unable to loan money to a disqualified individual (including yourself, your spouse, lineal descendants, and their spouses)
• Loans may be secured by an asset, but the asset cannot be a collectible
  • Collectibles include: art, rugs, antiques, gems, stamps, coins, alcoholic beverages, and other tangible personal property
• Any income earned from the interest or repayment of the loan must return to your account

For the complete list of rules, visit IRS.gov.

Q: What are the different types of notes?

A: Notes can be structured different ways including:

• Secured note
  • Has an asset pledged as collateral; collateral can be claimed to recoup the money borrowed, in the case of default
  • Security for the loan can be real property, mobile homes, corporate stock, etc.
• Unsecured note
  • There is no collateral to repossess in the event of default
• Draw note
  • Provides the borrower funds through multiple payments, also known as draws. Draw notes may be secured or unsecured. Also commonly known as construction loans.

Your account can also purchase an existing secured or unsecured note – at face value or at a discounted price. Your account takes the place of the lender and receives loan payments from the borrower.

Q: How do I request to purchase a note in my Equity Trust self-directed account?

A: The easiest way to request to make an investment in Private Debt is to complete the Private Debt Wizard. (Clients: log into myEQUITY.com, navigate to Investments>Private Debt.) The online wizard walks through all the instructions to provide the necessary to direct the investment be made within your account. Before you begin the wizard, please be prepared to provide:

• Loan amount or remaining principal
• Borrower’s name and contact information
• Collateral details (if the note is secured)
• Terms of the note

Be sure you have enough available funds in your account for the transaction. You can check available funds using myEQUITY.

Q: How should my private debt investment be titled?

A: When your account is the only owner, the investment should be titled:

Equity Trust Company Custodian FBO [Account Owner’s Name] [Account Type (IRA, HSA, CESA, etc.)].

The complete Investment Titling Guide can be found in myEQUITY under Resources>Education>Private Debt.

Q: What supporting documents may be needed to complete my investment?

A: Private debt investments require a copy of the note to be submitted with the Direction of Investment. In addition, you may be required
to submit documents including:

• Assignment of Note and Assignment of Collateral (if purchasing an existing note)
• Collateral Document
• Filed Articles (if loaning funds to a company)

[Read More: What is Promissory Note Investing?]

Q: What is required to be included in the terms of the note?

A: Note terms and conditions will vary based on the agreements within the note.

All notes must include:

• Face value
• Interest rate or flat fee amount
• Maturity date
• Repayment terms, which may include:
  • Periodic payment amounts
  • Balloon payment amount
  • Payment dates

Q: How do I manage payments received from the borrower after my purchase is complete?

A: Your borrowers may send payments directly to Equity Trust to be deposited into your account via direct debits from their checking or
savings account. Online payments may be set up as one-time or recurring. Visit www.trustetc.com/make-a-payment to learn more.

To deposit income yourself, send the check or wire made payable to your account with a Deposit Coupon.

If your account has partial ownership of an asset, you should only submit payments based on your percentage of ownership of the asset.

Q: Can I read an example of a real-life private debt investment?

A: Read about Guy, a Georgia investor who earned a 10-percent return on his hands-off, self-directed note investment.

Learn more: Private Lending with a Self-Directed IRA video

If you have additional questions about the private lending process at Equity Trust or getting started with a self-directed IRA, request a consultation today.