I have a client who is interested in investing a portion of his IRA in a L.L.C. The investment would be in the form of a note, which would outline the principal amount, interest rate, payment schedule, and so forth. The note is highly speculative in nature.

My belief is that this note, which from a fiduciary standpoint is probably not the best investment in the world, is still allowable under the IRA investment rules. The L.L.C. is not a "disqualified person" under IRC Section 4975 (therefore, not falling under the prohibited transaction rules)so that is not a consideration. I do not feel that the IRA is being used as security or being pledged as a loan, so it does not become a distribution under IRC Section 408(e)(4).

Anybody with experience or an opinion? Thanks.