When an IRA holds a performing note and a new deal surfaces mid-term, the capital is locked and the question becomes whether to pass or find a workaround.

Passed. That is the answer nobody wants but it is usually the right one.

The honest answer, based on how the rules work, is that most of the time the deal gets passed. That is not a failure of creativity. It is the structure doing what it is supposed to do: capital locked in a performing note is earning tax-advantaged interest, and the UBIT-clean nature of that interest is part of why it fits the IRA well in the first place. Passing a deal you cannot fund is a correct decision, not a workaround failure.

That said, there is a third path people use, though I want to be clear it comes with its own friction. Some SDIRA holders carry a small cash buffer inside the account, not invested in notes, specifically to bridge moments like this one. It is idle capital earning little, but it functions as optionality. If your IRA has been fully deployed into notes with no reserve, that buffer does not exist for you now, but it is a structural choice worth building into the next allocation cycle.

A second variation some allocators use: a co-investment structure where an outside party funds the deal entirely, and the IRA commits to participate in a future tranche or a subsequent deal once the note pays off. That depends entirely on the deal sponsor being willing to hold a seat, which is a relationship question, not a structure question.

One thing worth naming: any structure that routes money or benefit to or from a disqualified person to get around the liquidity problem becomes a prohibited transaction regardless of how it is labeled. A tax attorney familiar with SDIRA compliance is the right person to review any workaround before you execute it, not after.

Which of the three conditions on the participation route failed in your case? That would help me think through whether the buffer or co-investment angle is actually live for you here.

Sixteen flips taught me that the gap problem is a capital allocation problem first and an IRA rules problem second, and I did not figure that out until I had already passed on two deals in 2022 that I should have been in.

The structure I have seen work once in practice, not theory: the IRA assigns the full note to a non-disqualified third party at a slight discount, takes the lump, and deploys into the new deal. You lose maybe two to four points on the assignment depending on the note's rate and remaining term, but you are in the deal. The discount is the cost of liquidity, same as paying points on a bridge loan. What nobody talks about is that this only works if your note was underwritten to a borrower whose credit profile makes the paper actually assignable at something close to par, which means the underwriting decision you made eighteen months ago either bought you optionality or it did not. That is the thing I would want to know before I structured another IRA note: not the yield, but how fast I could get out of it at ninety-five cents if I had to.

What's the LTV on the existing note?

If it's low enough, some custodians will let the IRA borrow against it via a non-recourse loan to fund the new deal, UBIT applies but the deal still closes.