401K w/ "checkbook control"

Hi, I’m new here and very new to investing. I’ve written a few offers but am still waiting for my first “deal.”

I’m considering setting up a C-corp w/a401K plan within it. I’m self employed and have old IRA money floating around. I can fund the new 401K w/rollovers. The new 401K and I will be shareholders of the C-corp. I’m told that I can draw a salary from the C-corp and use the 401K funding as cash to acquire real-estate deals. I need to do this in order to have access to the cash in my IRA’s. I don’t want to do the investing strictly within the 401K or IRA because I need a source of every-day income. I’m finding that the “no-cash” deals are few and far between!

I found a company that supposedly specializes in this type of setup. They will do all the paperwork and filings for a fee of around $5,000. I’ve done a fair amount of checking and have found nothing negative relating to the company.

Has anyone set up this type of structure? If so, do the above mentioned fees seem reasonable? I’m in Texas if that has any bearing.


It’s a rip off and I’m not even sure it’s legal. The purpose of a 401k plan is to provide a retirement benefit for employees of a corporation, not provide funds to the corporation.

You can do the same thing with a self-directed IRA and avoid all the hassles and fees.

My understanding of a self-directed IRA is that I wouldn’t be able to use any of the proceeds as ordinary income - it would all have to stay within the IRA. Is there any way around this?

I need to be able to pull out the proceeds without any major tax implications. Ideas?


First, I’m not an attorney/lawyer/accountant, so the advice I’m giving is what I heard from one.
You can withdraw money from an IRA/401K without penalty, BUT, you must rollover the money into a qualified plan within 60 days. The qualified plan you rollover to could be the original IRA/401K (i.e., I changed my mind and just put the money back). There is NO grace period for this. If the money isn’t back in by day 61, you will face all penalties. “The check is in the mail” won’t work for this. If the money hasn’t been processed by your financial institution within 60 days, it sucks to be you. So, for this to work, you have to have the deals pretty much set in stone, quick turn-over rate and you have to meticulously micro-manage your money. If you’re not capable of and/or willing to do that, don’t attempt this.

Now, if you really, really want to make sure you understand how this works, just go read the IRS rules and regulations and follow them to the letter. Its not like the IRS hides these things; they’re freely available online. The IRS just won’t do your reading for you. If you aren’t willing to do the reading, interpretation and research yourself, then you’re going to have to hire an attorney/lawyer to do it for you.

The “checkbook control” idea is possible and still avoid early withdrawl penalties (I’m not sure about taxes, though). In some cases you can start taking distributions early (keyword being distributions, as opposed to withdrawls). However, these distributions have to be divided up over the remainder or your projected lifetime (i.e., the time left before you die). There are restrictions and qualifications to be met, so, once again, read the IRS rules and regulations and make sure you adhere to them. If you aren’t going to do the reading, then you need to hire an attorney to do that for you.

Once again, I’m not a financial professional. I’m only offering ideas for you to take to a financial professional (if you aren’t one already), to discuss concerning strategies that might work for you.


I am assuming that the setup is such that the money withdrawn from the 401K is a loan that must be repaid with interest.

Money you contributed to the 401K is not taxed as income when you earned it. You pay ordinary income taxes on your 401K money when it is distributed.

If you borrow money from the 401K, the interest you pay on the loan is paid with after tax money. In other words you have paid taxes on the income that you are using to pay the interest on your 401K loan.

When that interest is eventually distributed from your 401K, your distribution is taxed as ordinary income. You will end up paying ordinary income taxes twice on the same amount of money.

Find a better source of funding for your real estate deals, and leave the 401K alone.

The way this was explained to me is that the C-corp will have it’s own 401K plan. The 401K and I will own stock in the c-corp. I will be an employee of the C-corp. The C-corp will be making the investments using the funding from the 401K (not a loan, just a use of the cash) all proceeds from the deal will be income to the C-corp which can be distributed to the 401K as dividends and to me as dividends or salary.

Supposedly, this has been tested in tax court. It sounds like a pretty cool deal if it’s legit.

I will have to pay taxes on the salary income but that’s OK. The salary expense will offset the proceeds of the deal within the C-corp so it’s only taxed once. I suppose the portion paid as dividends to the 401K will be taxed as income to the c-corp before distribution, but I’m not crystal clear on that aspect.

Like I said, this is how it’s explained in the literature from the company that will set this up. Apparently it’s a product offered by lots of companies nationwide. (Similar to different agents selling the same insurance policy)


I’ll believe it when I see the PLR. Even if real, it will be expensive. What is the cost for compliance and maintenance of the 401k plan? How do you propose to keep current with retirement law? I guess the company that pushes this bunk has an annual service.

Why can’t a self-directed IRA loan money to this c-corp? There’s no 401k plan or administration headaches. There’s no dividends. The corp gets a tax deduction and income to the IRA is not taxable. The only problem is promoters can’t charge big money for it.

Small blurb from Wikipedia regarding Serf-Directed IRA’s

Some of the additional investment options permitted under the regulations include, but are not limited to, real estate, stocks, mortgages, franchises, partnerships, [private equity] and tax liens. Self-directed IRAs, by allowing a wide range of investment choices, improve the account owner's opportunities to diversify their IRA portfolio(s). . Also, if real estate or any other investment asset held in a self-directed IRA has been employed for personal use, or to gain any other personal benefit (other than a return for the IRA), in the view of the IRS or the Department of Labor, the IRA(s) may become immediately taxable.

To me it does not look like you can draw a salary if the IRA had directly invested in the real estate the Corporation buys.



Not quite the same situation here. As I see it, the 401K is buying stock in the corporation that is buying the real estate. It may be that the corporation is using the money from the sale of the stock to fund the real estate purchase.

a 401k can own stock in the corporation that sponsors the 401k.

the corporation can use the funds for operations.

the corporation can buy, hold, rent property.

interest and dividends paid to the stockholding 401k are tax-deferred like any other 401k investment.

none of this is particularly new or amazing. or illegal.

however, IRS provides pretty stringent penalties on the fiduciary administrators of the plan if a prohibited transaction occurs. so, while possible, it is unlikely that you’ll find an administrator who will do it without a PLR from IRS. And, of course, it will not be inexpensive to get one.