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Maybe you can, but maybe you shouldn't

June 10, 2010

It can be tempting to finance a small business with your retirement plan. Sometimes it's even possible, as Paul Neiffer reports. That doesn't make it wise.

There are many technical hurdles and compliance risks for IRAs and 401(k) plans that invest in companies owned by beneficiaries, including potentially devastating prohibited transaction penalties. Even when you can negotiate through the byzantine qualified plan rules, you still face the ultimate risk: you'll lose your retirement savings. It's wise to diversify retirement plan assets; throwing the lot into a start-up business does the opposite, putting all of your nest eggs in one basket. Maybe it's worth it to follow a dream, but think it over very carefully before you turn your retirement plan into your small business.

Tags: 401(k).Farm Tax CPA.Individual Retirement Account.

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