Should you use an IRA to fund your business?
I’ll bet you didn’t know you could use an IRA (called a “self-directed” IRA) to fund your business. I recently wrote about using IRA’s to fund businesses on my About.com Guide Site, U.S. Business Law & Taxes.
But I hesitated a long time before I wrote it. I don’t give investment advice, and I truly think this is not a smart way to invest an IRA. I can only think of two instances in which it MIGHT (note my emphasis) be ok:
1. You have lots of other money invested for retirement, and you have a defined benefit pension and health care from a large employer.
2. You are a very young baby boomer (late 40s) and you have lots of time to build you retirement funds back up if you lose the money you’ve invested in the business.
What do you think? Would you consider investing your IRA into your business?
6 Comments
It is far better to use the solo-401(k) and the use of an LLC for extra asset protection layer and check book capabilities when interacting with a business, franchise or direct marketing opportunity through a qualified plan.
[...] I found a good article that follows up on my recent post about using an IRA to fund your business startup. [...]
[...] I found a good article that follows up on my current post about using an IRA to fund your business startup. [...]
It is definitely worth using your IRA to fund a startup. Everything else aside, if you are smart and write a business plan and have the skills to turn a startup into a viable business the returns from this business will be much greater than that of investing in the investments of the average person (mutual funds, stocks etc.). In fact I would argue the lessons learned from starting a business would be worth the cash you spend even if you aren’t profitable and go out of business. People are so scared nowadays to do anything out of the norm- but the ones that step out of his or her comfort zones and defy the norms are tomorrow’s billionaires.
Thanks, George, for visiting Small Business Boomers and giving your input. I especially like your last sentence. Whether someone is considering using their IRA to fund a business or not, what you say here is something to keep in mind about business and life…”People are so scared nowadays to do anything out of the norm – but the ones that step out of his or her comfort zones and defy the norms are tomorrow’s billionaires.”
[...] Even with failure, comes learning, one of my readers commented on Jean Murray’s post, Should You Use an IRA to Fund Your Business? [...]