A Self-Directed IRA is a powerful investment tool that lets you invest in a variety of alternatives, including private or peer-to-peer lending. While having checkbook-level control of retirement funds allows investors to quickly fund a wide range of suitable P2P investments without the need to gain custodial approvement, there are certain considerations investors should take into account before making these types of investments.
Here are five things retirement investors should consider when making peer-to-peer loans from their Self-Directed IRAs.
Types of Peer-to-Peer Loans
Lending Club, Zopa, and Prosper specialize in the P2P lending space. Credit-worthy borrowers select suitable loan amounts and terms, and funds are delivered to their bank accounts via direct deposit. Loans are funded from a wide pool of investors who can put in as little as $25.
Self-Directed IRA account holders can use their retirement funds to tap into these types of opportunities, but they can take their P2P investments a step further since they have strategic control of their retirement funds. P2P lending opportunities to family, friends, and credit-worthy borrowers include:
- Personal loans
- Business loans
- Auto loans
- Mortgage down payment loans
- Student loans
- Medical loans
Naturally, these loans can carry increased performance and liquidity risk – unforeseen economic factors may adversely affect borrowers’ ability to repay their loans. Lenders also must be prepared to fully commit retirement funds over the course of the loan, which could affect their liquidity for other important investment opportunities that may arise.
Still, there are many compelling reasons to make P2P investments. Lenders can net strong returns by cutting checks to people or business owners they know and trust will repay their loans on time and in full. Peer-to-peer lenders also are empowered to establish their own loan terms and interest rates. For some borrowers, especially small business owners, P2P lending might be their only option to access capital.
Prior to cutting any P2P loan checks from their Self-Directed Solo 401(k)s, lenders should pay heed to these five factors:
- Due diligence. Investors are responsible for performing their own due diligence on potential borrowers. This includes verifying creditworthiness, ability to repay, and risk analysis of loan terms and impact of illiquidity.
- Disqualified persons. Lenders must ensure they only fund loans to qualified persons.
- Agree on loan terms. Once lenders and borrowers agree on loan terms, lenders are required to submit a completed Buy Direction Letter to Rocket Dollar.
- Loan documents. All loan documents must be filled out in the name of your SDIRA.
- Repayment. Loan payments must go straight to your SDIRA.
Self-Directed IRAs allow retirement investors to make secured or non-secured hard money loans to qualified persons. While investors enjoy tax-free gains and the potential for strong returns, P2P lending isn’t without its risks. Account-holders can check with our customer support team prior to making any loans to ensure they are transacting with qualified persons or address any other concerns they may have.
Thomas Young: November 11 2025
Henry Yoshida : July 13 2020
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Chris Palmisano