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What is a Self-Directed 401k–or mySOP: How to Set One Up

Have you ever wanted to start your own business using your existing retirement funds without paying taxes on those funds?  This is all possible through a self-directed 401k that we refer to as a mySOP.

What is a mySOP (self-directed 401k)?

An Employee Stock Ownership Plan referred to after this as a “mySOP”, is a form of a 401(k) plan set up for your own C-corp. The mySOP’s purpose is to purchase the shares of your own C-corp. This structure is designed to get cash from your 401(k) or IRA into a corporation.

This is necessary in order for start-ups, small businesses or cash-strapped companies to tap cash from their pension accounts.

This strategy can also be used when recourse lending is required and access to cash is also a need.

Setting up a mySOP is easy with our help. Here are the steps to set up a mySOP:

  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.

Why would you want to set up a mySOP? Here are the benefits of the mySOP?

  1. Allows for retirement cash to be placed into a company without it being a loan.
  2. Eliminates many of the prohibited transaction problems when conducting business.
  3. Provides capital for startups or other cash-strapped businesses.
  4. Provides for recourse loans when non-recourse loans are not available or practical.
  5. Can be used in conjunction with a standard 401(k) or stand-alone

Here is a diagram that shows visually how it is done:
Mysop Diagram
If you have any more questions about a checkbook IRA feel free to call, email, or comment below.

Author: , Self-Directed IRA Professional