How to Get Start Up Capital From Your IRA

(This week we have a guest post from Rick Pendykoski, who helps set up self-directed IRA accounts at Self Directed Retirement Plans, LLC. These accounts have more flexibility as to where you can invest the money than a typical IRA account. You can even invest the money in your new business or real estate venture. While I’m not a big advocate of taking money out of your IRA to buy stuff, it is a different matter to use the money in your IRA to invest in things other than the stock market.)

Are you looking for investors for your startup or business plan? Well, if you believe in your business idea, why not make an investment in yourself? Is that possible, you must be wondering. Yes, it is! You can access money to fund your startup using your own self-directed IRA.

This involves financing your company using your retirement account so that you can protect its capital gains. So, how is it done? In order to understand the process, you must first understand the difference between a typical IRA and a self-directed IRA.

Typical IRA versus Self-Directed IRA

An IRA, or individual retirement account, can be classified on the basis of the chosen custodian. Traditionally, the investments made through IRAs are controlled by the financial institution in which the account is held, and can only be made towards mutual funds, stocks, bonds and the likes. Due to such limitations, many retirement savers are leaning towards a Self-Directed IRA.

As the name suggests, self-directed IRAs allow individuals to decide their investment choices while opening up additional investment options such as real estate, startups, franchises, precious metals, etc. However, self-directed IRAs require you to hire a custodian who can assess alternative investment assets and provide the necessary record keeping services for these assets. Bear in mind that these custodians do not give you investment advice but rather provide oversight services.

How to Fund Your Business or Real Estate Investment

1. First establish a self-directed IRA through an experienced custodian who is well-versed with the rules and regulations of such accounts.

2. Execute a roll over from the existing IRA, 401(k), 403(b) or Keogh, to the self-directed IRA.

3. Next, you need to establish a Limited Liability Company (LLC) which will be managed by the IRA’s owner.  This is the legal entity for your business.

4. After which, you can initiate the purchase of membership units in the LLC by the self-directed IRA using the funds in the self-directed IRA.

By structuring your investments in this manner, you will be able to use the money in your IRA to fund your business without having to make any early withdrawals that would attract penalties or additional taxes from the IRS. The LLC can also borrow money, thus using leverage to increase returns. Additionally, it minimizes the number of transactions that need to be executed by the trustee, thereby lowering the overall cost of owning a self-directed IRA.

If you are considering investing through your self-directed IRAs, bear in mind that the IRS is extremely vigilant in such cases. Mistakes made during the setup or management of the account can lead to payment of expensive taxes or penalties as a consequence. So, choose an experienced custodian who is well-versed with information pertaining to government rules and regulations and can provide administrative services such as maintenance of records and issuing client statements accurately. Lastly, as with any decision that involves accounting and taxes, be sure to consult your accountant and your
lawyer before taking action!

(Editor’s note: If you are doing backdoor Roth IRA deposits, be sure you open the self-directed IRA as a Roth account. If it is opened as a traditional account, the back door Roth loses its appeal.)

Author Bio:

Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last 10 years has turned his focus to self-directed accounts and alternative investments. Rick regularly posts helpful tips and articles on his blog at SD Retirement as well as, SAP, MoneyForLunch, Biggerpocket, SocialMediaToday and NuWireInvestor. If you need guidance with traditional or alternative investments, email him at or visit

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