Carol Dawson sent along a link to an article in the New York Times about some entrepreneurs who think they have found a loop hole in the tax code that let's let use their 401k to fund their start-up business without actually withdrawing funds.
These business owners are effectively treating their start-up ventures as any other stock in their 401(k) portfolio, and in the process they are providing seed capital for their own budding enterprises.
But, it sounds like this might be news to the IRS. From the NY Times:
The I.R.S. said it could not comment about retirement financing. But a spokesman, Dean Patterson, said in an e-mail message: "We are looking at these types of transactions because they raise complex tax and benefit issues. Before entering into any tax arrangement, the I.R.S. always reminds taxpayers that they should discuss it with a trusted tax professional."
Two major rules that every entrepreneur should always follow: 1) never end up on 60 Minutes, and 2) never get a tax court case named after you or your business.
From the sounds of e-mail from the IRS, these entrepreneurs may be about to break rule number two.
Call me overly cautious, but I would not go anywhere near this approach to funding a start-up venture until the IRS gets it all sorted out.
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