Self-Directed Retirement Plans

man looking thoughtfulFinancing a business venture can be challenging. For some, leveraging your personal retirement account can be an option for entrepreneurs. There are rules governing almost every aspect of a person’s retirement account. Self-directing your retirement plan funds into your own business venture requires cautious handling because not adhering to the rules governing a retirement account can disqualify the plan. Any moves which would result in a disqualified retirement plan should be avoided.

A self-directed IRA can be used to invest in a real estate investment trust (REIT) or it can be used to invest in prospective business. The big restriction for a self-directed IRA is that the plans funds cannot be invested in a business if the owner of the IRA is also an owner or officer of that same business. Any movement of the IRA’s funds must be done through the plan administrator or the plan’s trustee.

A self-directed 401(k) can be used to invest in the plan holder’s own business. The business must be a corporation and must be taxed as a C-Corporation. Transactions between the 401(k) owner and the business must be handled deliberately, not haphazardly. The 401(k) actually owns the business, which means money taken out of the business bank account could be construed as a distribution from the 401(k) and money put into the business could be construed as a contribution to the 401(k). Therefore, the owner of a self-directed 401(k) should avoid any direct transactions with the business before consulting with the plan administrator or plan trustee.

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