LLC investment with Roth IRA?

[Jason Barnett]

I've got a Roth IRA account set up that isn't doing a whole lot for me (I bought some small caps that have gone nowhere). As I was looking around for better alternatives a thought hit me: is it possible for me to take that Roth money and invest it into an LLC that I have created?

Consider the implications here. With the Roth IRA (assuming you follow the rules) you are putting after-tax money into an investment account. The IRS then lets you have tax-free gains on all investments made from this account. Now I wonder: when my LLC realizes a taxable gain, will I get to avoid tax on my portion of the profits? After all I have used Roth money to make the investment!!!