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Roth/Investment Question
Old 03-22-2006, 08:57 AM   #1
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Roth/Investment Question

I have an unusual question about Roth IRAs.

I have a small web startup company that currently has no income or real "value", because we are pre launch. The cost of the equipment + ip + trademarks + domains + other related expenses for the company is around 20k.

I don't have a Roth IRA yet but I want to start one this year. Can I put 4000 in cash in my Roth IRA (the max) and then use that to buy shares of this private startup (a Delaware S status corporation)? Could I buy (or sell to myself) 20k/4k = 20% of the company? If I then paid dividends or sold the company, would 20% of those proceeds return to me tax free?

*I* know that the value of the business is likely to increase dramatically in next couple years, but currently, 20k is probably as fair a measure of its value as any.

Any input?
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Re: Roth/Investment Question
Old 03-22-2006, 09:10 AM   #2
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Re: Roth/Investment Question

Originally Posted by macdaddy
I have an unusual question about Roth IRAs.
You sure do, and I'd be interested to see the answer too.

A couple suggestions:
- What does IRS Pub 590 say?
- Is the custodian willing to make the purchase?
- For esoteric IRA questions, try the CPAs at Ed Slott's IRA Help board. They keep up with all the private letter rulings and other nit-picking details of these minefields.

BTW the phrase "sell to myself" implies self-dealing, which I believe is considered by the IRS to be a prohibited IRA transaction. But there may be mitigating circumstances.

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Re: Roth/Investment Question
Old 03-22-2006, 09:35 AM   #3
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Re: Roth/Investment Question

I would go to Slott's board too.

Even if you could do this, you will have a problem with unrelated business income tax. The IRA would have to pay tax at the trust rate on the income from the business.

No more lawyer stuff, no more political stuff, so no more CYA

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Re: Roth/Investment Question
Old 03-22-2006, 09:50 AM   #4
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Re: Roth/Investment Question

There was a guy at my work who did it with a slightly different twist.
His LLC issued adjustable APY high yield bonds (like 25% per year) which he bough in his Roth IRA (I think a local BB&T bank was the custodian).
To avoid "selling to himself" another person who was an officer in the corporation signed these bonds.
He (the president of LLC) did the signing for another guy.
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