5 Tips to Buying a Business With Your Self Directed IRA

Using a self- directed IRA to buy unconventional assets is not new, however can you use your existing IRA to buy a new business? The answer is a resounding yes! However you do need to make sure that you are careful or you can end up with a load of problems with the IRS including but not limited to Unrelated Business Taxable Income (UBTI).

1. Assess the risk – IRA’s or 401 (k)’s are designed for retirement purposes. Buying a business has substantial risks, you should do everything you can to limit these risks and preserve your assets. Using a tax deferred retirement plan should be thoroughly examined before going this route.
2. You need to have a self-directed custodian – A self-directed custodian is a location where you put your IRA or roll-over from a tax deferred plan to a self-directed IRA. I strongly suggest that before rolling over you should speak specifically with a representative of the custodian. Tell them EXACTLY what you want to do and then ask them what they would allow.
3. Target the right type of business – S-Corps or general partnerships are not good structures or targets for these types of businesses. This is generally due to the tax breaks these entities already receive.
4. Prohibited Transactions -While friends, business associates and siblings may invest in your business via a self-directed IRA, your parents, children or a spouse may not.
5. You can’t have your cake and eat it too – You can’t own more than 50 percent of the business in which you invest, and you can’t have a controlling interest in the company. In short, someone else needs to have the ability to “hire or fire” you.

Do you want to learn more about how to buy a business? I have just completed a brand new guide in buying a business “The Corporate Raider’s Guide to Creatively Financing Your First Business.” Download it free here: http://www.corporateraidersguide.com

Author: Ted E. Sanders
Article Source: EzineArticles.com
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