I am following up on some discussion we have had regarding the legality of a non-course loan from my father-in-law

BACKGROUND: I am following up on some discussion we have had regarding the legality of a non-course loan from my father-in-law to my solo 401K to purchase an investment property, given the fact that my wife is a trustee of the 401K. I have discussed this with several CPA’s in the Twin Cities area this week and have been told, similar to what you stated, that this type of transaction would be a very gray area with the IRS.  Most likely, any extensive research on the subject by a CPA or Tax Attorney would not provide the conclusive opinion I am looking for.  I have decided not to purse this type of transaction as it appears the risk of being classified a disqualified transaction is significant.

QUESTION: Would another option be, for me, to open a separate self-directed IRA account with funds that I hold in an IRA, in my name?  Under this scenario, in your opinion, would a loan from my father-in-law remain in the gray area or would it clearly not be considered a prohibited transaction?

ANSWER: Generally, the same prohibited transaction rules that apply to a qualified plan such as a 401k plan apply to an IRA. However, individuals have the option to open multiple self-directed IRAs. As such, those IRA investors looking to be aggressive with their particular IRA investment sometimes will open multiple self-directed IRAs to spread their risk of a grey prohibited transaction because the prohibited transaction rules apply separately to each IRA. 

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