How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask USTaxAdvising Your Own Question

USTaxAdvising
USTaxAdvising, CPA
Category: Tax
Satisfied Customers: 1094
Experience:  US Taxation specialist.
58296935
Type Your Tax Question Here...
USTaxAdvising is online now
A new question is answered every 9 seconds

I want to use part of my 401K to be one of two investors in

Resolved Question:

I want to use part of my 401K to be one of two investors in a USA (probably Ohio) holding company (we were thinking LLC) that will set up and own a Wholly Foreign Owned Enterprise in China. The WFOE is China will then sign a Master Franchise Agreement with a USA company and conduct business in China. I am living and working in China (but am a US citizen.) I will do some work for the WFOE and eventually draw a salary and bonus once we have postive cash flow. Can I do this? How best to do this?
Submitted: 1 year ago.
Category: Tax
Expert:  USTaxAdvising replied 1 year ago.
Hello,

Thank you for using justanswer. I can assist you with your questions today.

If you want to use 401(k) money as business capital, you have to fulfill several qualifications. First, your business must be a corporation which most likely the Chinese company is. If it is not you can always file Form 8832 and elect corporate classification. Next it has to issue shares of stock that the 401(k) can buy, and it must provide a valuation for those shares on an annual basis. Second, the 401(k) must allow the purchase. If you set up the plan yourself, you can write this in to the plan document. If you use another employer's 401(k), the stock purchase should fit into the plan's investment policy. Most self-directed 401(k) plans have liberal policies, but verify the rules before you count on making a purchase. However, if you are investing in your own business, there are restrictions you must keep in mind in order to avoid triggering a premature distribution.You are allowed to own or control no more than 49% of the business. You, and members of your immediate family, fall into the Disqualified Persons category as far as the IRS is concerned. In other words, if you or members of your immediate family own more than 49% of the company, the IRS believes you are taking a premature distribution and will tax and penalize you accordingly. For IRS purposes, Disqualified Persons include you, your children, grandchildren, spouse, and parents. Siblings, aunts, uncles, cousins, and step relations are NOT considered.

So to answer your question yes you can do this, But you have to be very careful not to be a disqualified person. I would suggest engaging a legal attorney to review you proposed transactions to ensure everything is in line with what you intend to do and it all meets IRS requirements.

Best regards
USTaxAdvising, CPA
Category: Tax
Satisfied Customers: 1094
Experience: US Taxation specialist.
USTaxAdvising and 6 other Tax Specialists are ready to help you
Customer: replied 1 year ago.
I read somewhere that the company that we set up would have to be a C corp - not a LLC or S Corp. Is that true or can we set up a LLC and become a S Corp later?
Expert:  USTaxAdvising replied 1 year ago.

The company must be a corporation. It could be an LLC which is classified as a corporation, but it could not be an S-corp. Foreign companies cannot be S-corps.

 

Best,

Customer: replied 1 year ago.
Can I set up the LLC first and then have my 401K buy into it?

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
 
 
 
Chat Now With A Tax Professional
USTaxAdvising
USTaxAdvising
Tax Professional
1094 Satisfied Customers
US Taxation specialist.