Forum Moderators: LifeinAsia
this technique would also require you to convert your Roth IRA into what is called a "self-directed Roth IRA" which means that you can invest in things other than stocks, bonds and mutual funds. the big custodians typically do not offer this, but many smaller custodians accommodate these self-directed IRAs which allow you to purchase real-estate, IPOs, privately held companies etc.
i have been researching this for some time, and wonder if any webmasters have any experience with this. sorry, this is only relevant for U.S. webmasters.
1) LLC's are "pass-through" entities, ie there's no corporate income tax on earnings, the only tax paid is by the members on their distributed earnings. Since your Roth IRA would not have to pay tax on the earnings, that's a good thing. However, any "salary" paid to you personally would be taxed as ordinary income. So I guess if you didn't "spend" any of your earnings and only socked them away 100% in your Roth IRA you'd be ok.
2) Isn't there some type of self-dealing exclusion in self-directed IRAs? ie if you buy a ski condo with your IRA money, you can't ever set foot in the place. I wonder if you could be the "maintenance office" for your condo legally? This would be the equivalent of you working (salaray-free?) for a business owned by your own Roth IRA.
3) Wouldn't you have to pay tax personally on the "capital gain" from the sale of your LLC to your IRA? My accountant says the cost basis for a web site you created yourself is 0, so you'd immediately lose 15% of your Roth IRA this way. Compare this to just withdrawing money from your Roth IRA.
However, any "salary" paid to you personally would be taxed as ordinary income. So I guess if you didn't "spend" any of your earnings and only socked them away 100% in your Roth IRA you'd be ok.
exactly. but the point is to only take a relatively small amount as income... the profit that goes into the Roth is tax free. that money in the Roth can be distributed without penalty in the following ways: a) when you are of retirement age; b) for the purchase of your first home; c) for education expenses; d) it can be distributed at substantially equal payments for the rest of your life (annuitized). alternatively, you can take out the money with a 10% penalty, which when you consider everything, isn't so bad.
Isn't there some type of self-dealing exclusion in self-directed IRAs? ie if you buy a ski condo with your IRA money, you can't ever set foot in the place. I wonder if you could be the "maintenance office" for your condo legally? This would be the equivalent of you working (salaray-free?) for a business owned by your own Roth IRA.
this is the big question. as i have read the rules, there is no clear mention of this. it is clearly stated that your IRA cannot be used to purchase your own residence, but purchasing the LLC that you are the sole controlling officer of, is not specified. i would like a little more confidence about this part of it. as far as i know, this has not been tested in court.
Wouldn't you have to pay tax personally on the "capital gain" from the sale of your LLC to your IRA? My accountant says the cost basis for a web site you created yourself is 0, so you'd immediately lose 15% of your Roth IRA this way.
i am just starting to make good money with my business, so i dont think it would be appraised that highly (based on traditional valuation methods, ie. historical financial statements). if your business is very highly valued right now, you may incur a significant cap gain.
if this can be done, however, the tax advantages are substantial, far outweighing the downsides. my primary question is, can it be done?
