401k

[Matt Horton]

Hello Iam trying to figure out away for my mother to use her 401k to invest into my llc to flip houses. Does anyone have any ideas? Thanks

[David Beard]

You face risk in putting together these "circular" loops when using tax-deferred funds. The flow of payers/receivers of interest can be tracked by the IRS (very directly if you're issuing 1098INT's), and if they discover that an ineligible party is in fact (indirectly) benefiting from an IRA account, then they can lower the boom. This reportedly happened to a circle of people that were lending to one another from their respective IRA accounts.

A simple example is two guys that each have $100K sitting in an IRA. They loan to each other based on an "arrangement". Unfortunately, this is a violation. Three or four guys can do the same thing, lending in a circular fashion to one another. Sneakier and convoluted, but violates the IRS rules just the same.