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Investing IRA Funds in Business Your Work for and more | Client Q&A

AdMail Podcast

In this week’s episode, IRA Financial’s Adam Bergman answers questions about investing IRA funds in a business, starting a Solo 401(k) when you have another workplace plan and where he shoots his videos.

We have three more questions that Adam Bergman will answer in the 2nd episode of AdMail. The featured questions span the country and include a question about using an IRA to invest in a business, your options for utilizing a Solo 401(k) when you have a workplace plan and where Adam shoots his videos. Now, on to the questions!

Question 1 from Blake H. in Portland, OR: I own 2% of a business as a passive investor. Can I use my IRA to invest and own another 2%?

When mixing personal and retirement funds in an investment, you should first consider the prohibited transaction rules. Since Blake owns less than 50%, there is no direct prohibited transaction. The next rule to look at is self-dealing. The IRS rules are grey when mixing funds, which may lead you open to scrutiny. Since he is not an active participant in the business (he states he is a passive investor), this is a check-mark in his favor.

As with any other IRA investment, you must prove that it exclusively benefits the IRA. Meaning, you, or another disqualified person, cannot personally benefit from your IRA holdings. Alternatively, if Blake says the company is failing and needs the IRA investment to “save” his personal investment, this will be construed as a conflict-of-interest prohibited transaction and will be flagged by the IRS. Assuming that’s not the case, chances are good that the personal investment, along with IRA investment should be perfectly fine. However, you may see the IRS come knocking, but you should be okay.

Question 2 from Lisa T. in Austin, TX: I have a full-time job and contribute to a 401(k) plan. Can I still have a Solo 401(k) for my side business?

YES! Assuming Lisa’s side business does not have any full-time employees, other than a spouse or partner, she can open a Solo 401(k). The only parameters to opening a Solo is that there are no full-time employees AND the presence of self-employed income. You can have two, three, five jobs, but so long as you meet these criteria, you can open and fund a Solo 401(k).

It’s important to note that just because you have multiple plans, that does not allow you to max out all of them annually. The 401(k) contribution limit is for all plans in the aggregate. If Lisa contributes the maximum allowable amount to her workplace plan (which is $19,500 if under age 50 for 2020), she cannot contribute that to her Solo 401(k). However, she may contribute as the employer to her Solo 401(k), up to a total limit of $57,000 for 2020. If you are at least age 50, you may contribute an additional $6,500.

Question 3 from Morgan S. in Cleveland, OH: Where do you should your videos?

Prior to the COVID-19 pandemic, Adam shot all his videos in a studio he set up at the IRA Financial office in Miami Beach. This space included a green screen, lighting, mics and cameras. Since mid-March, IRA Financial, including Mr. Bergman, have been working remotely. Therefore, he’s going solo, shooting the videos himself, right in his backyard! Growing up in Canada, Miami is a completely different climate. Of course, Adam is not complaining. But like most Americans, he would love to get back to work, and into the office (but maybe not five days a week!). I mean, check out his backyard and pool!

AdMail – Keep it Coming

We hope you enjoyed the second episode of AdMail. If you have questions for him, send him an email at [email protected]. As usual, he will choose the three most interesting questions he received.

As with his all of Adam’s podcasts, you can check out AdMail on SoundCloud. Be sure to subscribe to know when the next one pops up! Thanks for listening and have a great day, Self-Directed Nation!


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