Buying a Franchise with an Trad IRA or Qualified Plan money?
I have a client who has asked me if he could “buy or open a franchise” with his traditional ira. I explained to him that our firm does not recommend such a transaction but I have heard of this being done. Is this possible?
It was presented to me a while back that someone can form a business first (i dont know if it matter LLC, S or C). Then start a qualified plan (I am guessing a profit sharing plan). Then move the T IRA to the qualified plan. Then (and this is where I get stuck) have the qualified plan buy the shares of this business with the pre-tax, now qualifed dollars. The person who was explaining this to me claims he did this and did not trigger any tax or penalty on this transaction.
Can anyone help?
Permalink Submitted by Robert A. Bove on Sun, 2008-04-06 21:32
I don’t know the direct answer to your question, but I did have a similar situation. My client wanted to buy a business and the banker she was trying to get a loan from wanted her to use her Simple IRA as collateral. I was informed that this not allowed and if she did use it as collateral, it would be deemed a distribution.
Permalink Submitted by George Smojver on Mon, 2008-04-07 14:41
Thanks,
As this client of mine investigates his options and as I learn more about this I will keep you all posted.
Thanks again,
George