Written By: Daniel Gleich
Key Points
- A Self-Directed IRA (SDIRA) allows you to invest in private credit, expanding your investment options beyond those typically offered in standard IRAs.
- Private credit investing with an SDIRA has the potential for steady returns, diversification, tax advantages, and the ability to help an individual or private entity raise capital.
- Speaking with a knowledgeable SDIRA Specialist at Madison Trust and a financial advisor can help equip you with the information you need to know when investing in private credit with a Self-Directed IRA.
As the market is generally volatile, many investors seek to diversify their retirement portfolios. One such way to diversify is by investing in alternative assets, such as gold or real estate, through a Self-Directed IRA (SDIRA). An asset gaining popularity is private credit. Let’s explore what private credit is and the benefits and potential risks of investing in private credit with a Self-Directed IRA.
What Is Private Credit?

Private credit refers to loans or debt investments made from non-bank lenders to companies that are not publicly traded. Private credit investments are negotiated directly between the lender (in this case, the Self-Directed IRA account holder) and the borrower (an individual or entity).
It is an exciting investment opportunity for self-directed investors seeking to diversify their portfolio, receive steady returns, and receive tax-advantaged income.
Can a Self-Directed IRA Loan Money?
Yes! Through investing in private credit, a Self-Directed IRA serves as the lender. Typically, a bank would lend money to borrowers through loans, such as mortgage loans or personal loans. In a private credit investment, your Self-Directed IRA acts as the bank and can loan money to suitable borrowers.


The setup is generally favorable, as you are in control of the loan terms and lending process. You get to select the loan amount, interest rate, collateral (if applicable), maturity date, and repayment terms. You also get to choose who you loan money to, whether that be an individual, small business, startup, or another entity.
For even greater control, self-directed investors may consider a Checkbook IRA. With this account, a Self-Directed IRA LLC or trust and dedicated checking account are established to give you the ability to simply write checks or send a wire to make your investment.
It is important to keep in mind that all lending activity comes to/from the Self-Directed IRA. The money lent must come from your SDIRA. All profits, like interest earned, must be returned to the SDIRA. The borrower should make payments in the name of the SDIRA, not your name.
What Are the Types of Private Credit You Can Invest in with a Self-Directed IRA?
There are many types of loans that you can invest in with your SDIRA, including:
- Secured Loans
- Unsecured Loans
- Direct Lending
- Real Estate Debt
- Venture Debt
Other popular types of private credit include promissory notes and private equity.
Benefits of Lending From an SDIRA
Benefits for the Self-Directed IRA Owner

Investment Control
When you invest in private credit with your SDIRA, you get to choose the terms of the loan.

Tax Advantages
When you invest with an SDIRA, the funds earned are tax-deferred (Self-Directed Traditional IRA) or tax-free (Self-Directed Roth IRA).

Portfolio Diversification
Investing with an SDIRA allows you to invest beyond Wall Street. Unlike standard products, private credit is typically uncorrelated with the stock market’s performance, potentially leading you to have portfolio resilience, particularly during market downturns.
Potential for Steady Returns
Depending on how you set up the loan terms and fee payment structure, you can receive relatively predictable returns.

Generally Easy to Manage
Once the loan is set up, minimal management is typically required.

Impactful Investing
You can lend your retirement funds to help a local business, aid in the redevelopment of a neighborhood, fund a healthcare startup, and other philanthropic opportunities.
Benefits for Borrowers (Including Investment Sponsors)
Access to Capital
Private credit provides an alternative source of financing, particularly for those that may not meet the criteria for traditional bank loans or face challenges accessing capital markets. Typically, private companies or individuals can gain capital faster since requirements are generally less strict than bank or mortgage companies.

An Increased Source of Funds
There is over $3.8 trillion in U.S. retirement funds that can be invested in these private credit opportunities.

Flexible Terms
The borrower and lender can work together to form a repayment schedule, interest rate, and other terms they are both financially comfortable with.

Potential Investor Expertise
Self-Directed investors are encouraged to invest in what they know and believe in, so they may be more interested in these industries than the average investor. SDIRA investors are also investing for the long term, as they are saving for retirement.

Potential Risks of Lending From Your Retirement Account

Like any investment, private credit has potential risks. There is the potential that borrower does not pay back the loan.
To potentially reduce risk, perform due diligence before extending a loan from your SDIRA. Consider asking for an application and checking the borrower’s credit.
It is also important to understand the SDIRA lending rules and regulations set by the IRS, including prohibited transactions and disqualified persons.
It is considered best practice to speak with a tax professional, financial advisor, or Self-Directed IRA custodian. This can help you stay compliant with IRS rules.
Can an SDIRA Borrow Money?
The short answer is yes, your Self-Directed IRA can borrow money. The IRS has regulations in place that state that the debt must be “non-recourse.” This means that the IRA owner does not have a personal guarantee on it.
You can apply for a non-recourse loan in the name of your SDIRA. When utilizing a non-recourse loan, the investment property is collateral on the loan. If a default occurs, the lender can only foreclose on the collateral to satisfy the loan. There is no additional recourse against the SDIRA owner or other assets.


Investing in private credit with a Self-Directed IRA can be intriguing for investors seeking to diversify their retirement portfolios and potentially enhance returns. It is essential to conduct due diligence, understand the associated risks, and stay compliant with IRS regulations. By leveraging the flexibility of a SDIRA and investing in private lending, investors can potentially build a robust and resilient retirement portfolio.
Have Questions? We Have Answers!
Speak with a Self-Directed IRA Specialist to learn more about this exciting opportunity.