[BeetleB]

I suspect you phrased this poorly:

1. I set up an LLC.

2. I have a regular job which is earning me income.

3. I put some of that income into a 401K.

4. I direct the 401K to invest in my LLC.

5. As the guy running the LLC, I take that amount of money and pay myself a salary equivalent to what I put in.

How is that money ever going to grow? What's the benefit? You didn't pay taxes? Pretty weak benefit, IMO.

There is such a thing as self directed retirement. People buy real estate with it all the time. The regulations require, though, that any profits made out of it must go back into the retirement account until you're old enough to withdraw. I could use retirement money to buy a broken house, fix it up, and flip it. But all profits have to go back into that account. I cannot keep any for myself.

[occamrazor]

How would one avoid taxes? the income is not taxed at step 3., but it is taxed at step 5. as wage income. May even end up paying a higher payroll tax.

[throwitawayfam]

I did word it poorly, and you captured what I was trying to get at (thanks).

The benefit is for people that need to withdraw from their 401k before retirement without getting hit with the interest/fees. I guess another part of the benefit is if you want to take advantage of employer match but you don't want to invest in your 401k.

I didn't know about self directed retirement. I'll have to go do some research.

[BeetleB]

Well, avoiding taxes, and getting employer matches are the benefits, but you haven't explained how the amount will grow. You haven't invested it in anything.