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Can I start a company with my tax exempt savings
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Can I start a company with my tax exempt savings
<font size="1">Can you take a tax deduction on that recent purchase? Talk to others to get free tax advice and get tips on how to complete your IRS federal tax forms.</font>
I'm nearing retirement (age 66)and need to use $100K of my 401K and 403b tax sheltered savings to fund the purchase of a couple of rental homes for retirement income. Rather than withdrawing the
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Cat:827966ee-6d39-4ef7-98a5-0157a43092f8Forum:a882faf9-edb3-472d-896c-a5e64a486dfc
Cat:827966ee-6d39-4ef7-98a5-0157a43092f8Forum:a882faf9-edb3-472d-896c-a5e64a486dfcDiscussion:e6a39905-27fc-4d32-af97-27dbea8132f9
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Can I start a company with my tax exempt savings
posted at October 2, 2011 1:10 PM EDT
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Posts: 1
First: October 2, 2011 Last: October 2, 2011 |
I'm nearing retirement (age 66)and need to use $100K of my 401K and 403b tax sheltered savings to fund the purchase of a couple of rental homes for retirement income. Rather than withdrawing the $100K and incurring income tax, I'm wondering if I can start a real estate corporation and invest my $100K in that company while continue to shelter it from taxes. That would give me 15% 5o 30% more to invest, and I could just pay taxes on the income (distributions) that I take each month. Any ideas on whether/how this would work? |
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Re: Can I start a company with my tax exempt savings
posted at December 22, 2011 2:15 PM EST
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Posts: 2
First: December 22, 2011 Last: December 22, 2011 |
In Response to Can I start a company with my tax exempt savings: I'm nearing retirement (age 66)and need to use $100K of my 401K and 403b tax sheltered savings to fund the purchase of a couple of rental homes for retirement income. Rather than withdrawing the $100K and incurring income tax, I'm wondering if I can start a real estate corporation and invest my $100K in that company while continue to shelter it from taxes. That would give me 15% 5o 30% more to invest, and I could just pay taxes on the income (distributions) that I take each month. Any ideas on whether/how this would work? Posted by dgcaskey It can be done, but its tricky, expensive & the IRS is doing everything it can to shut these down. I do NOT recommend that you do this. In fact, I recommend that you do NOT do this - you'd be safer, from a compliance perspective, to TAKE a distribution, pay the tax and invest what's left in your new company. To make this work you need to set up a new "C" corporation - a pass-through entity will NOT work. Then the new corporation must set up a new 401(k) Plan. You will NOT be able to use a prototype plan because the plan will need to contain several nonstandard provisions - it will need to not only accept transfer from other accounts BUT it must allow investment in the company sponsoring the plan. Then you transfer money from the old plan to the new plan and the new plan BUYS stock in the new corporation. THEORETICALLY, this gives you access to the cash without taking a distribution. Here's the rub - A) it will cost you at least $10,000 and maybe more to get paperwork done that MIGHT comply with the IRS rules; B) C corporations will require that YOU take a reasonable salary - so you'll convert your retirement money into payroll and subject it to FICA tax as wel as unemployment at the Federal and State level; C) C corporations are subject to "double taxation" meaning that any profits that are distributed to the owners are first subjected to tax at the corporate level THEN are taxed a second time on your personal return; D) The IRS is attempting to reclassify these plans as SELF DEALING. If they are successful then ALL your plan will collapse - not pretty; E) you can't restrict OTHER employees from participating in buying stock in YOUR company via their participation in the 401(k) plan. And you need to be careful if you're the ONLY employee - there are "top heavy" and other testing rules that apply to 401(k) plans - fail these and the plan blows up. F) you'll incurr annual fees to keep your corporate registered and alive to conduct business in each state in which it has a property; G) you'll incur periodic and annual fees for the preparation of payroll and income tax returns for the corporation. All in all, it is CHEAPER and LESS RISKY to just take the distribution, pay the tax and invest what's left. Good luck.
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Re: Can I start a company with my tax exempt savings
posted at December 22, 2011 2:42 PM EST
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Posts: 1923
First: November 27, 2011 Last: May 18, 2013 |
In Response to Can I start a company with my tax exempt savings: I'm nearing retirement (age 66)and need to use $100K of my 401K and 403b tax sheltered savings to fund the purchase of a couple of rental homes for retirement income. Rather than withdrawing the $100K and incurring income tax, I'm wondering if I can start a real estate corporation and invest my $100K in that company while continue to shelter it from taxes. That would give me 15% 5o 30% more to invest, and I could just pay taxes on the income (distributions) that I take each month. Any ideas on whether/how this would work? Posted by dgcaskey Lots of rules and regs and you have to be very, very careful in how things are set up - espensive too. Why don't you just do a transfer of the retirement funds to a self-directed IRA and then invest in REIT mutual fund - if that is what you want - real estate. If you want to buy RE for rental - it would just be easier to pay the taxes on any distribution of the funds, set up a tax structure,buy the real estate and then start managing all the properties yourself. Then you can depreciate the properties and expense related items as a business would do. |
