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Question for the Money Doctors

Question submitted on Feb 6, 2013.

Question

Dear Sir/Madam:

I am thinking about rolling over my traditional IRA account into a "solo 401k" plan, as I hear this would give me checkbook control of funds, plus the ability to use the funds to buy precious metals, then store them nearby (i.e., bank safety deposit box).

Of course, this entails starting a business: writing articles for Hubpages, running errands, mowing lawns, etc. all qualify (as far as I know).

However, I fear that the IRS may force me to convert the solo 401k back into an IRA, within 3 to 5 years, if the business isn''t making any money. Is that correct? Would they consider the purchase of the precious metals as a distribution, then nail me for a penalty? Please let me know. Thank you very much.

Answer

I am not aware of any requirement by the regulations that would require you to convert the solo 401K back to an IRA if the business is not profitable, but let''s examine the reasons for converting the IRA to a solo 401L in the first place.

First, since I don''t know how old you are and what other funds that you may have available for retirement, but if I assume that the bulk of your retirement funds are in the IRA, you might want to rethink this. Regardless of your age, you should be investing in a deversified portfolio designed to provide proper asset allocation after giving consideration to your risk tolerance. Investing the bulk of your retirement assets in precious metals sounds more like gambling rather than investing.

Please reconsider this action and discuss the matter with a financial advisor who can take into consideration a more complete plan that would include all of your assets. Visit www.findacpapfs.org to find a CPA/PFS near you.


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