While it’s technically legal for an IRA to own a taxpayer’s business (so the taxpayer owns the business indirectly by owning the IRA), there are many traps. For example, where the taxpayer guaranteed a loan to his corporation that was owned by the IRA, this was a prohibited transaction that triggered a deemed taxable distribution of the entire account, plus a 10% early distribution penalty because he was under age 59-1/2.
Barbara Weltman
Big Ideas for Small Business, Inc.
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