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Entrepreneurs: Invest in Private Businesses with Retirement Funds

private business investment

Investing your retirement funds on a private business

Entrepreneurs are generally money-savvy, bootstrapping geniuses. Those who are the most effective will always seek for ways to save money in whatever way they can. This is highly evident in today’s outsourcing obsessed world.

One of the best ways to cut costs is to avoid taxes wherever possible. And good entrepreneurs know this is highly difficult to achieve, especially if they’re actually highly profitable. However, there are tax advantaged accounts that allow even the least cost conscious entrepreneurs to gain from investing in private businesses with their retirement funds, tax free.

Both Roth and Traditional IRAs can be rolled-over into an account known as a self-directed IRA. Performing a retirement account rollover into a tax advantaged IRA, allows you to receive the profits fully tax free or tax deferred into your IRA.

Let me paint an example. Let’s say, for instance, that you want to invest in a local franchised business that has almost guaranteed cash flow right from the outset of purchase. Or, perhaps you know of a business for sale that you could easily buy with the monies in your IRA that would give you an immediate return on your investment. So, you buy said business and find someone to manage the company as you do not want to be a micromanager. After doing so, let’s say your $80,000 to $100,000 retirement account purchase of this business is cranking out $5,000 per month. You’re receiving a 60% return on your invested capital.

Perhaps the best benefit of this whole system is that the monthly cash flow of $5,000 is either tax free or tax deferred, depending on how you set up your account. That means, you’re making $60,000 extra per year in a tax advantaged way. Depending on your tax bracket, setting up the account helped you to save thousands of dollars just in taxes, not to mention the fact that you now have even more retirement money to throw at new, better business investment ideas. Forget about the SBA and finding a business lender. Use your retirement account to invest in privately held businesses and receive the returns tax free.

Image: tungphoto

About author

Ivan Widjaya
Ivan Widjaya 2023 posts

Ivan Widjaya is the Owner/Editor of Noobpreneur.com, as well as several other blogs. He is a business blogger, web publisher and content marketer for SMEs.

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  • If corporations are now considered “people”, the fair thing is to tax them at the same individual income tax rates of other “people.”