Raise Money Using a Self-Directed IRA

This article was written by Asheesh Advani of Entrepreneur.com. Asheesh is Entrepreneur.com's "Start-up Financing" columnist and president of CircleLending, a financial services company that facilitates loans among friends, relatives and business associates.

If you believe in your business and think it has the potential to be a long-term success, why not make an investment in it using your retirement plan? Can it be done? You bet it can, using a so-called "self-directed IRA."

To be clear, this isn't the same as borrowing from your 401(k) or your spouse's retirement savings. In previous columns, I have cautioned entrepreneurs against borrowing heavily from retirement assets. Instead, raising money by using a self-directed IRA is the opposite; it involves putting your company's stock into a retirement plan to protect its capital gains. In my opinion, self-directed IRAs are an underappreciated tool for allowing entrepreneurs -- and their friends -- to invest retirement funds into a start-up.

As always, take care to do it right and to not cross the IRS. But investing funds from your self-directed IRA into your business is a viable and potentially wise alternative you should consider. In fact, your siblings, friends and business associates can also invest in your business from their retirement funds and ensure their capital gains get favorable tax treatment. This could make an otherwise break-even investment proposition seem more attractive. ...