Last Resort Money For Home or Business

    March 7, 2003

Looking to pull money out of your IRA? Maybe you need the money to grow your business, to buy a home, or to get you through a financial bind. Well, before touching your nest egg you should first learn about the ways to help protect your nest egg from hefty taxes or penalties.

One of the newest tax saving tips is the use of the Self-Employed 401(k) loan feature. Self-Employed 401(k) plans work like regular 401(k) plans, except that they’re limited to one-person firms with no employees other than a spouse or co-owners. In addition to providing the possibility to shelter a larger portion of income than is possible with other retirement plans from taxes, the Self-Employed 401(k) offers several other benefits for cash-strapped small business owners.

You can rollover your IRAs, 401(k) from a prior job, or any other retirement plan to a Self-Employed 401(k). There is no limit on how much you can rollover. You can then take a loan from your Self-Employed 401(k) for up to $50,000 or 50% of your balance, and not pay any IRS penalties and taxes on the loan, as long it is repaid.

It doesn’t matter if you started your business last week or several years ago. Any single business owner, independent contractor with 1099 income, freelancer, sole proprietor, or person in a partnership, Limited Liability Company (LLC) or corporation, can tap into the full benefits of the Self-Employed 401(k) plan.

The Self-Employed 401(k) loan repayment period typically ranges from 5 to 10 years, depending on the loan use. More importantly, all of the payments and interest go into your account so you are really paying yourself. Before raiding your IRA and paying a big penalty to the IRS, investigate taking advantage of the Self-Employed 401(k) loan tax strategy if you have your own business.

Daniel Lamaute is CEO of a division of Lamaute Capital, Inc., an investment brokerage firm. Daniel has over 20 of experience in investment finance. He holds an MBA from Washington U in St. Louis, and advanced degrees from NYU and Harvard. For more information on Self-Employed 401(k)’s check out: