Yes, though you will not be the one signing. The IRA owns the note, so its custodian carries out the sale on your written direction and the proceeds go back into the account instead of to you personally.
Who owns the note
A self-directed IRA is a retirement account permitted to hold assets beyond stocks and funds, private notes among them. The custodian is the company that holds the account and its assets for you.
When the IRA acquired the note, it was titled in the custodian’s name for the benefit of your IRA, and that wording appears on the note and on the recorded mortgage or deed of trust. You direct what happens and the custodian carries it out. Where an IRA holds its note through an LLC that the account owns, the LLC’s name will be on the paper instead, and the custodian or your adviser can tell you who signs in that arrangement.
Where the money lands
Sale proceeds are wired to the IRA’s account at the custodian. Selling therefore swaps one asset inside the account for another, the note for cash, and that cash can be paid out under the account’s ordinary rules or reinvested, which for some holders means buying another note in the self-directed IRA.
Taking money out is a distribution. It is a separate step from the sale, and its tax treatment depends on the type of account and your circumstances, which makes it a different question from whether the money from selling a note is taxable when you hold the note yourself. If the real aim is money to spend, ask your CPA what a distribution would cost before you sell the note to fund it.
How the steps differ
| Step | Note in your own name | Note in an IRA |
|---|---|---|
| Who decides to sell | You | You, by written direction to the custodian |
| Who signs the assignment | You | The custodian, for the IRA |
| Who holds the original note | You or your servicer | Often the custodian |
| Where the money is wired | Your bank account | The IRA’s account at the custodian |
| Who pays the sale costs | You | The IRA, as a rule, so confirm it with the custodian |
Custodians have their own forms and review queue, and some charge a processing fee. Ask yours at the outset what it needs and how long its review tends to run, so that the buyer can plan the closing around it.
Rules on who the IRA may deal with
Retirement accounts restrict the parties an account may transact with. In general terms the IRA is not meant to deal with you personally, with certain close family members, or with businesses you or they control. Crossing that line is often called a prohibited transaction, and the consequences can reach the whole account.
For a note sale the questions are practical ones: who the buyer is, who the payer on the note is, and whether you are being asked to sign anything personally or pay a cost from your own pocket. Put them to your custodian and to a CPA or attorney who works with retirement accounts before you agree to a sale, because we cannot advise on IRA rules.
Why account holders sell
A sale comes up when the account has to start paying out and holds little cash, when the payer has become unreliable and you do not want the account carrying that risk, when another investment looks better, or when the custodian’s fees and paperwork no longer seem worth it for a single note. These are the same situations that lead any note holder to sell, with a retirement account wrapped around them.
If the account needs some cash but not all of it, a partial may fit. A set number of upcoming payments is sold and the note returns to the IRA afterwards. Ask the custodian whether it will administer one, then read the partial purchases guide.
Pricing an IRA-held note
A buyer pays for the payments and the security behind them, so the price does not change because an IRA is the owner. We need the same facts as for any note: balance, rate, payment, payments made, the property and the payer’s record. When you give us the note’s details, add the custodian’s name and the exact wording of the title, so that each offer names the right seller from the start.
Call the custodian first
Ask for its note sale procedure, its fee and the form of direction letter it accepts. Ask too whether it holds the original note, since the buyer will need it at closing. A buyer cannot plan a closing until the custodian has answered, and the direction letter is the document the rest of the sale waits on.
Related questions
Can I buy the note out of my own IRA?
Retirement account rules generally restrict dealings between an IRA and its owner or certain family members. Do not assume it is allowed. Ask your custodian and a CPA or attorney who works with retirement accounts before taking any step.
Is selling an IRA note the same as taking a distribution?
Generally not. The sale turns the note into cash that stays inside the account. Taking that cash out is a separate step with its own tax treatment. Your CPA can tell you how it applies to your account type.
Does an IRA-held note sell for less?
Not because of the IRA. A buyer prices the payments, the payer's record, the property and the lien position. The custodian's paperwork can add time and a processing fee, so raise it at the start.