Especially for startups, it's common that the initial investors are typically the manager and his or her family and friends. They want to put in money from their own pockets and from their own retirement accounts. If done right, which will take sound advice from competent counsel, such combinations may be possible under the rules. If done incorrectly, there can be some ugly consequences to the retirement account and the tax consequences for the account holder.

Such consequences include anywhere from 15%-100% penalties, disqualification of the account, immediate distribution of all of its assets as ordinary income and possible early withdrawal penalties to account holders who conduct prohibited transactions in their IRAs. It is imperative that investors know the rules and receive good advice.