How to Use 401k to Invest in a Corporation Without Taxes
The Internal Revenue Service (IRS) has a broad list of acceptable investments for 401k plans and Individual Retirement Accounts (IRAs) including stocks, bonds, mutual funds, investment real estate and certain precious metals. Publicly traded stocks are a common investment for many retirement accounts, while buying stock in a private corporation is less well known. To purchase private stock, the custodian must allow this transaction. The purchase may strictly be an investment, but there are also custodians who manage business owner retirement savings accounts to fund new business ventures the IRA owner is starting.
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Instructions
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Call your IRA custodian and ask whether your existing custodian is capable of buying any type of stock. Brokerage firms are able to purchase publicly traded stock on your behalf, but not all can buy private stock. Specialized CPA firms often manage IRAs with private stock. Many 401k custodians allow stock purchase for the employer's corporate stock but may not allow a wide range of stock purchase options.
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Open an IRA at a custodian that meets your investment needs of buying corporate stock. Fill out transfer paperwork and submit the form with a copy of your existing 401k statement to expedite the asset movement. It can take up to six weeks for a transfer to be completed.
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Tell the new IRA custodian to purchase the stock. If the stock is a publicly traded company, the brokerage firm will place a "buy" order with the money from the account using the stock symbol. If the stock is issued by a private corporation, the CPA will contact the appropriate individual and request the purchase. The sale will be recorded as the money from the IRA is sent to fulfill the transaction.
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Tips & Warnings
As long as the transfer and stock purchase are done within IRS guidelines, there is no tax consequence to the IRA owner. Transfers from a 401k plan, also called a rollover, must be done after employment is terminated.
If the purchase is for private stock, the CPA will send money to the company to deposit into operating accounts. A stock certificate made out to the IRA custodian for the benefit of the owner is issued and held by the IRA custodian.
