Can You Use a 401K or IRA to Start a Business? (updated)

There is usually one thing that makes starting a business tricky. Many people do not start their own businesses because they simply do not have it. What is this one thing? CAPITAL/MONEY. Without money it makes it really hard to jump out on a ledge and start a business, especially if that business requires some sort of purchase of a machine, building or product in order to get started. There is an option out there that many people do not know about that will allow you to get the capital needed to start your business. The way to do this is to use your IRA or 401K. You must have a “self-directed” 401K to do this, so if you have an IRA or 401K, you will need to convert that account into a self-directed 401K. As we continue, we will talk about self-directing your 401K to invest in a business.

A self-directed 401K is a 401K plan setup for your company. As the Manager of the company, you can act as the Trustee for the Plan’s monies. Like a self-directed IRA, the 401K enables you to self-direct your investments, but in this case it is on behalf of your 401K.

One investment option available through the self-directed 401K is buying shares in your own company, allowing you to fund and run a business. This can be a great benefit to you if you wanted to start a business or franchise but didn’t have the start-up money available. It allows you direct control over how well your 401K performs through direct ownership of your own business.

How does it work?

1.Create C-Corp.   Accuplan will create the entity with the appropriate state.
2.Create the mySOP Plan (Trust with Plan documents).  Accuplan will create the Plan and file with the IRS.
3.Roll over all or some of your monies from an IRA or 401(k) to your mySOP.
4.Set up Checking Accounts for the Company and the Plan.
5.Direct Investments by purchasing stock in your C-Corp with pre-tax mySOP monies.
Want more information about setting up a self directed 401K? Want to talk to a professional? Contact me today.