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George Saenz, the Tax Talk columnistUsing retirement funds for business investment

Dear Tax Talk,
Is there a product where I can roll 401(k) money into an IRA CD and then borrow against it? I am 39 and have an opportunity to purchase part of a business.
-- Richard

Dear Richard,
You can't borrow from or pledge your IRA, as that would be considered a taxable distribution. However, you can borrow from certain retirement plans.

Basically, the plan has to allow for participant loans. You can borrow up to the lesser of $50,000 or one-half of your vested account balance. However, if you're leaving your current employer to explore business opportunities, you should be able to set up your own pension plan with a rollover of the 401(k) funds that will allow you to borrow the funds you need.

You'll need to set up a company, preferably an S corporation that will establish a pension plan. You don't actually have to use the S corporation for the new business operations; rather you can use it as your form of investment in the new business. You should meet with a qualified CPA that can help you set up the planned investment and provide guidance on establishing the right retirement plan and on structuring your potential investment.

To ask a question on Tax Talk, go to the "Ask the Experts" page, and select "taxes" as the topic.'s corrections policy -- Posted: Nov. 29, 2006
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