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?



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.



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



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