SOCNET

Go Back   SOCNET: The Special Operations Community Network > General Topics > The Lounge

Reply
 
Thread Tools Display Modes
  #1  
Old 16 December 2018, 16:53
usmc_3m's Avatar
usmc_3m usmc_3m is offline
Confirmed User
 
Join Date: Jun 2013
Location: PR of Kali
Posts: 1,316
Self-directed 401k to start a business

I found some threads that discussed using a SD 401k for better investment options, or a business already operating and using a 401k - but has anyone gone the route of starting up a business by using a SD 401k as a rollover from your existing 401k ?

I am putting together plans to start a biz and am looking at all of the initial funding options. This one seems like a good one.

So if anyone has gone this route and has lessons learned to share - I would love to hear them. Thanks in advance.
__________________
"He who does not punish evil commands that it be done." -- Leonardo Da Vinci
Reply With Quote
  #2  
Old 16 December 2018, 18:36
MacDuff's Avatar
MacDuff MacDuff is offline
Confirmed User
 
Join Date: Feb 2008
Location: Frankfort, KY
Posts: 871
I haven't done it but I've heard good things. The big thing to be careful of is the potential tax ramifications if the investment is deemed a withdrawal; you don't want that to happen. That said, I assume that the providers who specialize in SD 401k's are pretty stringent on keeping that from happening. There are only a few companies who do this. Also, I would have a good business attorney review everything so that you have an extra layer of oversight.
__________________
Drinking from a firehose...
Reply With Quote
  #3  
Old 16 December 2018, 19:49
Janitor Janitor is offline
Ghey floor sweeper
 
Join Date: Oct 2012
Location: Bottom Feeding
Posts: 2,554
The key difference between a traditional and self directed plan is that one can invest in closely held companies through a self directed plan. The basic process is create the self directed plan, roll over the traditional plan into it, then purchase stock or a membership interest in the corporation/limited liability company that you have created. Iíve recommended it to several clients who wanted to invest in real estate or even use their 401(k) funds to buy a primary residence (in which case they essentially pay interest to themselves).

The SD plan receives all of the tax benefits that the shareholder or member would otherwise receive, so it may not be the best vehicle for an active business (real estate is a passive activity). For example, if you need to generate a loss in one entity to offset gain in another personally, the loss would flow to the plan instead of you. Talk to a CPA or tax attorney about the specific business you want to pursue before pulling the trigger.
__________________
FKA Azatty
Reply With Quote
  #4  
Old 17 December 2018, 12:07
usmc_3m's Avatar
usmc_3m usmc_3m is offline
Confirmed User
 
Join Date: Jun 2013
Location: PR of Kali
Posts: 1,316
MacDuff and Azatty,

Thanks for your input. I would definitely not do the SD 401 unless I could do it as a rollover (vs. a withdrawal).

Here is the high-level plan I have researched for doing this:
1. Create a Corporation. The guidance I have read recommends a C-Corp
2. Create a new 401k
3. Roll over existing 401 to new 401
4. Invest new 401k in new corporate stock (as well as other options)

This will provide a legal, no tax penalty method of getting a business off the ground.

Since tax season is just around the corner, I will run this past my accountant (CPA, JD) and get his input. Thanks again for your thoughts.

Btw - I know if I go this route, I will need to replenish long-term retirement funds in some way.
__________________
"He who does not punish evil commands that it be done." -- Leonardo Da Vinci
Reply With Quote
Reply

Thread Tools
Display Modes

Our new posting rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is On



All times are GMT -4. The time now is 10:43.
Powered by vBulletin® Version 3.8.11
Copyright ©2000 - 2019, vBulletin Solutions Inc.
Socnet.com All Rights Reserved
© SOCNET 1996-2018