Some individuals choose to invest self-directed IRA’s in businesses owned by a neighbor, friend or sibling.  For example, an individual could roll over money from a previous 401k or existing IRA into a self directed IRA. Once this process took place, they could then designate their business investment and their retirement account could collect profits from the investment. All this tax deferred or tax free depending upon the type of retirement account.

 

There are a variety of Self-directed retirement plans that can be funded via a self-directed retirement account which include: A Roth Solo 401(k), which can provide many similar tax benefits as the Roth IRA (tax deductible contributions and no taxation upon withdrawals); Savings Incentive Match Plan for Employees, also known as a S.I.M.P.L.E., a smart decision for investors with lower incomes ($45,000 per year or less) who would like to invest in small corporations of less than one hundred employees.  The S.I.M.P.L.E. account allows tax deductible contributions and taxable deferment on any gains until distributions are made. If you’d prefer not to invest directly into a business, another option is to make an IRA loan from the account. Before deciding upon an investment, be sure to speak with a knowledgeable accountant or tax advisor concerning Unrelated Business Income Tax (UBIT).

Whatever expenses associated with maintaining the business can be written off on the corporate tax return.  Don’t forget that any profits from your investment cannot be used personally (i.e. you are not allowed to work for the company or be paid a salary). Making a business investment is another excellent way to utilize the flexibility associated with a self directed IRA. This is a great way to put your business savvy , corporate experience, and creativity to work by paving the way towards retirement.

Tags: IRA loan, Roth Solo 401(k), self directed IRA, self-directed IRA's, Self-directed retirement, self-directed retirement account