Can I use this to buy a boat?

QUESTION:

I have an IRA. I need the entire amount to buy a boat that I will use as a business (cruises and AirBNB).

Would I have to take a loan and pay it back w/in 5 years at prime? What happens if I miss two or more payments?

Thanks,

Beth

ANSWER:

If you are self-employed with no full-time employees (which could be your boat business):

  • You can set up a Solo 401k and then take a loan of up to 50% of the balance not to exceed $50,000 which you can then use the funds in your business.
  • You would have to pay back the loan on a monthly or quarterly basis (however you prefer) in equal payments of principal and interest (prime +1%) over a five-year term.
  • If the loan goes into default (i.e., you miss a payment and don’t make it up by the end of the following quarter), the outstanding balance of the loan will be considered a taxable distribution.

Alternatively:

Alternatively, you could use our 401(k) business financing plan which would allow you to invest all of the funds in your business and would not have to be paid back since it would be structured as an equity investment rather than loan. There are, however, significant compliance requirements (e.g. you must run the business as a C Corporation, etc.) and the cost are higher (i.e. we charge $4000 for the first 12 months and $899 per year thereafter).  For these reasons, you may find that these requirements and costs are not justified.

Please see more of the following links

Learn More:

    • SOLO LOAN VS ROBS 401K BUSINESS FINANCING
      • You are looking to use your retirement funds for business financing.
      • One option is our 401k Business Financing (or rollover as business startup).  This option would allow you to invest all of the retirement funds and does not require repayment but is a higher cost and would require operating the business as a C-corporation.  The funds not invested in the business can be invested in alternative investments.
      • Another option is to use our Solo 401k Loan for Business Financing which would allow you to borrow up to 50% of the balance (not to exceed $50,000) that you could use for business financing.  This option has a lower cost and would allow you to operate the business through an LLC or S-corporation but requires repayment of the loan(s) and is designed for a business with no w-2 employees who work more than 1000 hours per year.
      • Solo 401k vs. ROBS 401k Business Financing
  • TRANSFERS:We would handle the transfer from your former employer plan and/or IRA accounts as a non-taxable trustee-to-trustee transfer/direct rollover to the Solo 401k.  You can’t transfer funds from a Roth IRA because of the Roth IRA rules.
  • 401K LOAN: Our Solo 401k plan would allow you to take a 401k participant loan of up to 50% of the balance (not to exceed $50,000) & we would prepare all the required loan documents as part of our services for no additional charge.   As far as the terms of the loan, you would need to pay it back on a monthly or quarterly basis (as you select) over a five-year term with payments of principal and interest at a rate of prime +1% (which would currently amount to 6.25%).   Please see the following link for more information:

Solo 401k Loan Facts

Solo 401k Loan Rules

Process Solo 401k Loan

  • ACCOUNT SETUP: As part of our services, we would guide you through the process to set up an account for yourSolo 401k.  You can have a bank or brokerage account for your solo 401(k), or even both (and we would help you set up the accounts as part of our services).  For example, if you wish to have an account at a brokerage like Fidelity, we would prepare all of the paperwork that Fidelity needs to set up a free account for the Solo 401k (i.e. no set up or maintenance fees) that comes with a free checkbook and through which you can invest in traditional investments (e.g., stocks, mutual funds, bonds, etc.) as well as alternative investments such as real estate, promissory notes, etc. since they are allowed under our IRS-approved plan documents. Please see more at the following links:

o   Fidelity Brokerage Account

o   Bank vs. Brokerage Account

  • FLAT PRICING: 

Our Solo 401k fee structure is 100% flat. Our initial fee is $550 which covers everything to establish the plan (for both of you), including account set up, transfer of existing retirement funds as well as the first 12 months of ongoing compliance support.  Starting 12 months later, we charge a flat annual fee of $125.  Please see more the following link:

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

  • About MySolo401k

    We help our clients take control of their retirement money. Our products and services provide our clients the freedom to invest their retirement savings in their own business as well as alternative investments such as real estate, private companies, promissory notes, precious metals, tax liens and equities.
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