Loan as asset in IRA

markrougeux

I have made loans out of my IRA (assets). There doesn't seem to be a way to create such an account in Quicken Premier for Mac, version 6.1.1 that I can find. Does anyone have any ideas on this?

jacobs

To the best of my knowledge, there is no such thing as an IRA loan. (There is for other retirement vehicles like a 401(k), but not for an IRA.)

Please provide a little more information so we can give proper advice how to mirror what happened in the real world in your Quicken file. So did you withdraw money from and IRA account to loan it to someone? When you withdrew the money from the IRA account, where did the cash go? To your checking account, and then you lent it?

markrougeux

Within an IRA, one can invest not only in stocks, bonds, and mutual funds, but also such things as private equity deals, real estate, private debt, digital currency, precious metals, etc. through a self-directed IRA. Companies like Vanguard and Fidelity do not offer these options but there are firms that do. In my own case, I have made two loans within my Roth IRA, one to a railroad track project, and the other to a machine shop started by my brother. There seems to be no way to create these assets within Quicken.

The precise trail of the cash was as follows: cash from my Vanguard Roth IRA was transferred to my Roth IRA at Equity Trust Company, which allows self-directed investments. My Roth IRA account at Equity Trust then loaned the money to the recipient. I have no trouble creating this in Quicken except for the very last step: funding the loan, and therefore tracking the interest and principal payments received.

My guess is that this is not possible currently but would need to be the subject of a future update.

jacobs

Again, perhaps my understanding is wrong, but even with a self-directed IRA, you can't actually loan money:



Like all IRA's, your self-directed IRA is an asset, an investment. I think the money the brokerage paid out is the equivalent of a security you have invested in. I would think you'd create a security for each of the investments, and in Quicken, show the "purchase" of each of those investments. Your IRA remains an asset, any interest paid is a dividend, and when the money is repaid, you would "sell" the security in Quicken, returning it to cash in your IRA account.

I'm sure someone else will jump in if I'm all wet on this.

NotACPA

I'd be interested in hearing about how Equity Trust Company navigates around those, seemingly pretty straightforward rules.

Chris_QPW

We have self directed IRA accounts because of investing in Lending Club Notes, so I think I can give some insights on this.

First off how does Lending Club (and others) get around the "Lending money extending credit" rule?

Simple it is in their name "Notes".  As in the investor isn't directly lending the money.  Lending Club is, and the "members" get notes.   In the case of Lending Club that note is spread among a lot of investors, but I don't think it matters.  The point is that it is the financial institution lending the money and then issuing a "security"/note for the investors "interest in" that security/loan.

As what kind of account and how to maintain it, I simply created a manual entry IRA account and and a "Lending Club Note" security, which is $1 to 1 share.  And then I just enter buys/sells/misc inc/expenses.

markrougeux

NotACPA: there is no getting around anything. The rules have always allowed IRAs to do self-directed investments, but they need to be done through a custodian, like Equity Trust, who manages billions in self-directed IRAs.

jacobs

@markrougeux  Yes, I was wasn't questioning your transactions, only that you were characterizing it as a loan. As I wrote and Chris corroborated above, for you this is an investment account, and either the entire fund or the individual loans can be entered din Quicken as securities. From a tax perspective -- and thus a Quicken perspective -- you have an investment, not a loan, even though the self-directed IRA is a way to essentially create a loan via a third-party broker/custodian. 

Chris_QPW

BTW I will point out one thing that is true for Lending Club Notes that may or may not be true for your investment.

The investments are a small amount in thousands of notes/loans.  One might think to try to track each as in individual security in Quicken.  Quicken isn't designed for that and would quickly be overwhelmed.  So instead I use one security and buy/sell/... the dollar amounts, and only enter "summary transactions" for each of the different part of the monthly statement.  Like Buy for dollar amount of notes issued, Sell from principal paid off, ...

markrougeux

@jacobs My background is in finance (not Quicken!) so let me clarify a few points: 1) Re your earlier post about prohibited transactions, a more careful reading will note that loans are prohibited with DISQUALIFIED persons. Disqualified persons include members of your immediate family, for example. The law contains NO outright prohibition against making loans or extending credit; 2) there is no "tax perspective" because this is an investment within an IRA. Only DISTRIBUTIONS from an Traditional IRA incur taxes (Roth distributions are tax-free); 3) a self-directed IRA is not a way to "essentially" create a loan via a third-party, it IS a loan with loan documents and repayment schedules just like any other; 4) which is precisely the issue - Quicken does not seem to allow me to create a loan as an asset or investment within any account. It only understands loans from the perspective of me as a borrower. I hope this makes clear a few points to those reading these posts.

Chris_QPW I will look into your workaround to see if it does what I want it to within Quicken. Thanks.

jacobs

@markrougeux  I think Chris and I were saying basically the same thing. I understand there is a loan, but the loan is made by the broker/custodian, not you, correct? As such, you make an investment in your IRA account, and the custodian sells the note/makes the loan. I still think it's correct to say that you have not made a loan from your Roth IRA; you have made an investment, and the investment vehicle is a loan. And Quicken does allow you to purchase an investment in your IRA account; you just need to create a security representing the loan or note that you invested in. As Chris says, it's probably easiest to create it at $1/share for the amount of the loan/investment. 

To a couple of your points:

• To clarify one thing, you said Quicken doesn't allow creating a loan as an asset within any account. Actually, you can create asset accounts for lender loans in Quicken. Quicken doesn't automate anything about the loan, but you can create an asset for the amount of the loan, and split payments between interest income and reducing the amount of the asset. But Quicken does not have a way to do this inside a retirement investment account, since IRA accounts don't contain loans.
• You talked about disqualified persons; neither of the loans you mentioned involved disqualified persons, so the loans are not a problem. I think the disconnect we're having is that you're saying you made a loan from your IRA, when you actually didn't; you had the custodian of your IRA make a loan. From a tax/bookkeeping perspective, you purchased an investment in a loan rather than making a loan.

I hope that helps, but I'll bow out of the conversation at this point because I feel I'm  repeating the same thing. Best wishes. 

Chris_QPW

I think @jacobs' answer covers this, but I can't resist giving my own answer. 

There are only two possible ways this is recorded.
As a security or as an actual loan that you manage (you are the lender).
As a security it can be in an IRA account, as a loan it has to be a separate account because Quicken doesn't allow having accounts in accounts.

A loan that that you manage/a lender loan is an asset account, because that is exactly what it is to you.  You should be able to set that account as "tax free" (I believe the Mac version has that) and for the most part it should just work like the IRA account in the sense of taxes.