Can you use an IRA LLC to invest in your son's startup business?

QUESTION:

Can you use an IRA LLC to invest in a company that your son is starting up? I would own 30% of the company (investment of $50K from existing IRA accounts) and would be a passive investor? If you cannot use the LLC is there any method of using your retirement funds to do this?

ANSWER:

While you are not permitted to invest funds via the IRA LLC in your son's startup business, if you are self-employed you could set up a Solo 401k, take a Solo 401k loan and invest the loan proceeds in your son's business.

Here is quick breakdown of the Solo 401k loan rules.

• The Solo 401k loan term is 5 years for general loans.

• The Solo 401k loan term can be more than 5 years not to exceed 15 years if used to purchase principal residence for you as trustee/participant of the Solo 401k.
• Solo 401k loan payments are made either monthly or quarterly
• The interest rate for a solo 401k loan is either: A certificate deposit rate plus 2 percent or theprime rate plus 1 percent.
• Loan payments are fixed payments consisting of interest and principal
• Solo 401k loan rules do not allow for Interest only payments or principal payments only.

• The maximum Solo 401k loan amount is either 50% of account balance or maximum amount of $50K.

– Example 1: Solo 401k balance is $50K; 50% of $50K = $25K (the Solo 401k maximum loan amount)

– Example 2: Solo 401k balance is $150K; 50% of $150K = $75K; however, the maximum permitted Solo 401k loan amount is $50K

– The minimum Solo 401k loan amount is $1,000.

To learn more about the solo 401k regulations VISIT HERE.