Borrowing against an IRA/401K

superbuyer · 03-20-2007, 06:31 PM

I started a business and my friend has an IRA she's about to open with her tax refund. Can you borrow against your IRA and if so, do you know any bank that does that? Also, can the financial institution that holds your IRA lend you the money?

Hedwig · 03-20-2007, 06:42 PM

I don't know about borrowing against an IRA. It used to be against the IRS rules to borrow against an IRA, but you could borrow against a 401(k).

However, I would not advise doing that to start a business, because you are putting your retirement at risk. It's better to find some other means to get the money.

The institution where you have can lend you money if they do loans and you meet the criteria.

Enigma · 03-21-2007, 12:28 AM

You cannot borrow against an IRA. If your friend has not already placed her refund in the IRA, then she can loan you the money. Once it is placed in the IRA she cannot borrow against it except for certain permitted uses. Your's is not a permitted use.

Unless your friend does not need the money and can afford to lose it, I generally counsel people not to borrow from friends. Should your business not produce a profit fast enough for your friend, it may cause problems leading to a failed friendship.

Hedwig · 03-21-2007, 12:36 AM

Quote:

Originally Posted by Enigma

You cannot borrow against an IRA. If your friend has not already placed her refund in the IRA, then she can loan you the money. Once it is placed in the IRA she cannot borrow against it except for certain permitted uses. Your's is not a permitted use.

Unless your friend does not need the money and can afford to lose it, I generally counsel people not to borrow from friends. Should your business not produce a profit fast enough for your friend, it may cause problems leading to a failed friendship.

I didn't think you could borrow against an IRA, but since I don't do taxes anymore I don't keep up as well as I should. As I said, even if you can it's a bad idea.

And your point about loaning money to a friend is right on point. Whenever you hand money over to a friend, you should plan to never see the money again.

arwen · 09-24-2007, 01:33 PM

it's true you cannot borrow against a traditional IRA except for very specific and limited purposes. However, if your friend rolled her IRA into a true SELF-DIRECTED IRA, she could invest in your bussiness by buying into it or making a loan, providing you are not a family member. WIth a self-directed IRA, you can invest in specific stocks and mutual funds (not just what the traditional IRA administrator offers), real estate, businesses, etc. Google "self-directed IRA" to learn a lot more. Two of the most popular comapnies are Entrust and Equity.

To spoof the guy on the JG Wentworth commercials: 'It's your money- invest it where YOU want to"!

Qtip · 09-24-2007, 02:23 PM

Quote:

Originally Posted by arwen

it's true you cannot borrow against a traditional IRA except for very specific and limited purposes. However, if your friend rolled her IRA into a true SELF-DIRECTED IRA, she could invest in your bussiness by buying into it or making a loan, providing you are not a family member. WIth a self-directed IRA, you can invest in specific stocks and mutual funds (not just what the traditional IRA administrator offers), real estate, businesses, etc. Google "self-directed IRA" to learn a lot more. Two of the most popular comapnies are Entrust and Equity.

To spoof the guy on the JG Wentworth commercials: 'It's your money- invest it where YOU want to"!

Good info, thanks for sharing!