Avoiding Double taxation | 401k Questions

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Asked 1/21/2008

Avoiding Double taxation

We just recently started a LLC. We have a 401K that we would like to cash out and invest in our LLC but would like to avoid the funds being taxed twice. Is there any way to invest the money into our LLC without having to report it as taxable income for the LLC?

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Answer 1/2 - Submitted 8/12/2010

Your withdrawl of the 401(k) would be subject to a 10% penalty and ordinary income taxation unless you meet an exception. I don't think you qualify for an exception. The only way I think you could do it is to get a loan from your 401(k) to invest in the LLC. You may want to talk to your CPA. I hope this answers your question. Thank you.

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Answer 2/2 - Submitted 8/13/2010

Your capital investment into your new business isn't taxed as income from business activity.

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