Establishing 401(k) to Access IRA via Loan
We just discovered that a new client was previously advised to set up an LLC, start a solo 401(k), roll her IRA into the 401(k), and take a loan against the 401(k) for the sole purpose of avoiding the 10% penalty and income tax liabilities of withdrawing from the IRA. The EIN/business is not operational. What, if any, risk is she carrying by implementing this advice? Seems fraudulent to me, but wanted to check.
Permalink Submitted by Alan - IRA critic on Sat, 2024-02-24 19:57
With no intent to operate a business under the LLC, the IRS could consider this a fraudulent conveyance if they became aware of the situation. Otherwise, client would need 100k of solo K balance to support the max loan of 50k to be repaid with interest over 5 years. Client would also have to locate a solo K provider that offers loans. I assume client is not an employee of a firm sponsoring a 401k as that would be much cleaner.