Forums: Discussions for entrepreneurs and small business.

Hi Everyone,

I read earlier posts regarding hesitation is borrowing against one`s
401k
funds, however...

Using a portion (not the whole enchilada) of your IRA account for under
$25,000 to fund the initial start up of your business seems like a smart
move to me. I think I read that borrowing funds from your IRA for 60 days
is penalty-free?

Anyone have experience with this?

Thanks!
blahgeetsa

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Blagica (blah-gee-tsa) Stefanovski, Founder of <a href="http://www.bsolutionsonline.com">Bsolutions</a&g t;

blahgeetsa,

Check out IRS Publication 590, pp. 22-23.  I hyperlinked it for you along with an excerpt below:

http://www.irs.gov/pub/irs-pdf/p590.pdf

 

 

Note also that any funds not rolled back into the IRA within 60 days are subject to the 10% penalty tax if you`re below age 59½. 

 

If any amount distributed from the IRA is not rolled over, that amount would be includible in the gross income in the year of receipt, not the year in which the 60-day period expires.

 

You should be certain you can repay the whole withdrawal within 60-days, or you`ll have a big tax bill.  Also, you can`t dip into the IRA again within the same 12-month period.  The IRS won`t let it become a personal piggy bank.

 

Something more fleixible to consider is establishing a Solo(k) Plan under the tax ID of your business.  Then you make a direct rollover of all old 401(k)`s and pensions (plus all other IRA`s if you want) into this new Solo(k).  Once all the assets are consolidated this way, and if the Solo(k) Plan you establish permits, you may borrow up to $50,000 or 50% of the account balance, which ever is less.  The rules to avoid the Solo(k) loan from being taxable require you repay all of the loan within five years; that you make repayments at least quarterly using level amortization (i.e. no balloon payments at the end); and you must charge yourself a reasonable rate of interest.  You also need a promissory note that meets IRS standards before the loan is disbursed.

This Solo(k) method helps your cash-flow by lowering your payments and you won`t be pressured to repay it all in 60 days.

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David M. Hembree, QPA www.hembreetpa.com

Thanks much!

I also had a chat today with my accountant and he said the same thing...are
you sure y`all weren`t practicing any mental telepathy? LOL.

Also, he suggested I go the traditional loan route, which may be viable,
given the small sum I`ll need.



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Blagica (blah-gee-tsa) Stefanovski, Founder of <a href="http://www.bsolutionsonline.com">Bsolutions</a&g t;