"Arthur L. Rubin" <ronnirubin[at]sprintmail.com> wrote:
- quote -

Interesting analogy you present and certainly nobody would
question interest paid to a pass-through entity as
deductible under appropriate circumstances. I'm not sure I
would consider a 401(k) as a regarded entity for this
purpose.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

David Woods, EA, ChFC, CLU wrote:
- quote -

I supporting deducting on Schedule A interest paid to a
401(k) which will eventually be taxed as ordinary income on
a 1099-R. But even the circumstances you describe could
happen with a "regarded" (what's the opposite of
"disregarded entity") pass-through entity. There would be
no way of avoiding SOMEBODY paying tax on the interest, even
if it did end up that you were paying it to yourself, so the
interest should be deductible regardless of who it was paid
to.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"Arthur L. Rubin" <ronnirubin[at]sprintmail.com> wrote:
- quote -

You're NOT serious. You're suggesting deducting on Schedule
A, interest you're taxing yourself on with Schedule B?

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

HW \"Skip\" Weldon" <skip5700removethis[at]hotmail.com> wrote:
- quote -

That situation is precisely what the prohibited-transaction
rules prohibit.

Solo 401(k)s with a loan feature have been developed, in no
small part as a way of working around this rule.

--
Chris Green

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

David Woods, EA, ChFC, CLU wrote:

(in regard mortgage interest paid on a 401(k) loan.)

- quote -

Cite? In this context you pay taxes on the interest you
pay to yourself, unless the interest becomes 401(k) basis.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"daveA" <david0a[at]nospam.com> wrote:

- quote -

A poor one at that. You cannot deduct interest you pay to
YOURSELF.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

daveA" <david0a[at]nospam.com> wrote:

- quote -

Thanks for all the replies. The question came from someone
who wished to use his 401k to INVEST in the business, not
borrow from the 401k. In other words, he wanted the 401k to
buy stock in his business. Hence my concern about a
prohibited transaction.

-HW "Skip" Weldon
Columbia, SC

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

As for tax deductibility on that interest......

Why doesn't he back the loan up with a lein against his
property (assuming he has property) and then the interest he
pays (usually money actually going back to his 401k), would
be deductible. Actually he wouldnt even need to do that...
If he uses the loan for business it (the interest) would
already be deductible.

Just a though.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"HW "Skip" Weldon" <skip5700removethis[at]hotmail.com> wrote:

- quote -

He wants to be able to take a loan on the 401(k). While I
don't see a technical problem, it's certainly the LAST
avenue I would take. As you note, it's not the interest on
the loan per se that makes it a lousy idea, it's the
administrative costs of having the plan and lack of tax
deductibility on that interest that makes it a lousy idea.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Friend has SEP IRA. Wants to change to one-person 401k and
name self as trustee. Purpose is to access 401k funds for
his business. He said something about being able to use 50%
in business.

This is a bit exotic for me. My first thought was that
there might be a problem with the prohibited transactions
rules. And my second thought is that even if he were to set
up a special 401k, the costs therewith would probably make
an equity line loan look cheap.

Comments?

-HW "Skip" Weldon
Columbia, SC

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->