USA Solo 401k/IRA Investments/Cannabis

[atjosh1112]

I'm trying to see what is the best way to go about investing solo 401/IRA monies into a company. The background story is that myself and a couple of other investors will be purchasing manufacturing equipment and leasing it to a company. At the end of the lease, we would be offered personal equity in the company. The company is a cannabis business if that changes your thoughts on the matter. Minus the legalities of cannabis, I'm looking for your ideas as if I would be leasing farming equipment to a farmer. I'm including 3 possible scenario's in which this can take place. I'm totally open to your ideas and expertise:

1) We loan the money for the equipment using our individual retirement accounts. Our lease will most likely be 4 years or less. There will most likely be 3 or 4 owners of the equipment (we'll purchase it from the manufacturer and lease it to a company) so it'll be owned free & clear and payments will be split according to the percentage invested. Our lease agreement will have an end date in which the equipment will be paid off and possession will be turned over to the new owners. After the end of the agreement, we will then be given a personal equity interest in the company. This event will take place only after our lease agreement is satisfied. We will have 2 separate contracts for both matters.

2) Scenario 2 will be exactly like scenario 1 except at the end of the lease, we will then be given the opportunity to purchase a personal equity position within the company. Again, the lease will terminate and the new personal position will be a separate transaction.

3) This scenario is the same as 1 & 2 except once the lease has been paid in full, an equity position will be given to our retirement accounts. In all 3 scenario's an interest rate will be charged on the lease/purchase.

I'm interested in what your thoughts, comments and ideas on this are. Thank you.

 

[kirby]

You are just a little ahead of the times. Fed govt still treats your product as illegal. So now we review anti-money laundering laws which say that if money from an illegal source is deposited at some point into a bank, then it's a crime.
Also check out the excess distribution laws on IRAs and 401K's. Those say if a certain percentage is taken out of the IRA or 401K then it is considered a taxable distribution, plus penalties for early withdrawal.
Lots to be looked at here...

 

[atjosh1112]

Thank you for your reply, Kirby. I appreciate the thinking points.

Can you elaborate on how my transaction would be considered a distribution? I'm using the funds as my investment much like one would invest in stocks and bonds in a traditional 401k. I understand that as long as the investment stays in the name of the 401k, I don't stand to gain in any personal way and it's not a prohibited transaction per the IRS guidelines (alcohol is prohibited, cannabis is not) then I am not taking a distribution at all but I would like to hear what else you may know on the matter. I want to make sure I'm doing everything correct.

I am definitely ahead of the game on what I'm looking to do but I'm comfortable with it. First, I'm only leasing equipment, much like the utility companies offering utilities and real estate companies offering real estate to a cannabis business. I hear what you are saying and appreciate the feedback, I'm really just looking how people would handle this situation to avoid items such as unrelated business taxable income, early distribution penalties and person gain conflicts with the 401k itself.

 

[kirby]

Hi
Company 401K plans typically have a limited set of investment options curated by your employer and the plan provider. If that applies to your situation, then for you to get cash from the 401K it has to be pulled out of the 401K. So, in your planning just first check with the plan provider and see specifically how you will move funds to your desired investment.

For the legality of depositing funds from your business into a bank, just be sure you are up to speed on the federal laws on anti-money laundering.

Good Luck!