Feb 22

A Creative Way to Fund Your Entrepreneurial Passion: Your 401(k)

Here’s an article from Kiplinger from contributor Charles C. Scott talking about the ROBS solution –

Never heard of a “rollover as business startup” transaction? It carries risks, but also important advantages for those seeking second acts in their careers.

I want to get out of the corporate rat race and follow my passion! But how do I pay for this?

Boy, if I had a nickel for every time I have heard this, I’d be a wealthy man.

Recently, I was talking with Mathew, a friend of a client. Mathew is a senior executive in large national company and is looking for a change of scene. A change so he can pursue what he’s really good at and loves to do, but doesn’t have the opportunity to do in the company where he is now.

He’s been pretty successful but is frustrated with the corporate bureaucracy that gets in the way of his good ideas. So, he’s looking at creating his own enterprise but has some critical questions.

Ever heard this before? We certainly have.

It seems to be happening all the time and not just among younger entrepreneurs. The fastest-growing area in business start-ups is coming from the 50- and 60-year-old segment of the population. They are taking the risks not necessarily out of need, but because they are seeing opportunities.

These entrepreneurs have been and interesting group for financial advisers to work with, according to Greg Bresiger in an article he wrote for Financial Advisor magazine.

Bresiger gave some good examples of questions to ask: What’s the real goal? Are you ready to compete with the 28-year-old who is eager to work 80 hours a week? Are you tapping your experience base or going into something completely new? What if it fails?

So, having considered all of this, you’ve done your homework and you’re ready to start the new enterprise. Where will the money come from? Family? Friends? A small-business loan? A home equity loan? What about your 401(k) plan assets?

What!!? My 401(k)? Are you nuts?

You’re willing to sacrifice your retirement dollars and start a business on your own. What have you been smoking? After all, small businesses fail at a very high rate, with over 1 out of 3 going under in the first two years and half failing within five years.

In addition, how do you get at the 401(k) dollars without paying income tax on the money as it comes out, and even a penalty if you’re younger than 59½?

Ever heard of a “rollover-as-business-startup” transaction? Let’s just call it “ROBS” for short.

I hadn’t heard of it either until a few months ago.

So, how exactly does this work, and how does the IRS feel about it?

Let’s start with the IRS. They looked into this in 2010 and their Employee Plans Compliance Unit concluded this was not abusive in avoiding taxes, but certainly only would benefit one person – the 401(k) owner.

I’m going to say it now, and I’ll repeat this at the end, you need to make sure you’re working with a professional who really understands how this all works. If your CPA is helping you with this, you need to know that this person is well versed in the ROBS process and feels like it makes sense for you.

CPAs are, by nature, pretty conservative, so be sure yours is willing to be a little outside the box on this idea, and truly understands the process.

Let’s now look at how this all comes together.

Both tax law and ERISA (Employee Retirement Income Securities Act of 1974) law have some exemptions designed to allow investments in small business, sort of like what an Employee Stock Option Plan (ESOP) does.

You start by setting up the company as a C-type corporation that has a 401(k) plan of its own. The owner transfers funds from the previous employer’s 401(k) plan into the new 401(k) plan, and that plan buys shares in the new company, thereby becoming a shareholder of the new company.

So right here there are going to be some costs associated with starting a corporation and creating a 401(k) plan, so don’t be surprised.

Here are a couple of key points:

The funds rolled over from your previous retirement plan are not taxed, so there are no income taxes to pay nor any potential early withdrawal penalties if you are under age 59 ½.

Also, you need to understand that you, as an owner, are a different entity from the 401(k), which is also an owner. Even though it was your retirement money in the first place, you need to operate as if the 401(k) owner is a really picky partner, and make sure you follow the 401(k) rules to the letter.

If there are other employees of the company, they must be offered the chance to buy stock also, otherwise the IRS would not be satisfied the company plan meets the necessary requirements.

Other IRS issues revolve around the filing of various tax forms, most often the 5500 form, which, in the case of ROBS, needs to be filed annually.

And you should expect the IRS to pay extra attention to you, making sure you do everything by the book.

Do you see the need for working with someone familiar with all of these requirements? You better!

And you still have a live, working 401(k) plan that comes with the costs of administration and the requirements of making sure any current or future employees understand the workings of the plan. And the plan trustee, you the business owner, is a fiduciary of the plan, and as such, needs to always act in the best interest of the plan, not just themselves.

And here is the time to make sure that the new business owner understands the complexities of a 401(k) plan and should know enough to hire a professional plan administrator to make sure all of the details of the plan are taken care of.

If all of this seems like a lot of extra stuff to deal with, it is, but the overall benefits might just outweigh the hoops that need to be jumped through.

For example, there’s no need to take out a loan, have the debt to pay back, and you get to forgo the delight of dealing with a lending institution – a bank usually – which comes with all of the documentation and lending underwriting and all of the other requirements that banks demand.

Remember, banks like to lend to people who don’t really need to borrow the money in the first place. It’s not likely that it’s the person wanting to start their own business. At least not without a huge commitment to collateralizing the loan from the start.

But the upside is that you, the owner, are in control, at least from a financial point of view, without the bank as your unwanted “partner.”

And don’t forget another key issue – the new business owner doesn’t have to stop saving for retirement.

They have set up the 401(k) plan in the first place, and as an employee, they will have the ability to make contributions to the plan from their income, therefore continuing to grow their retirement assets.

As I said before, and it requires repeating, you need to make sure you’re working with a professional who really understands how this will all work.

I can’t caution you enough about this idea. You are taking a huge risk with your “retirement” money. You truly need to know if you can afford to mess up your retirement to follow your dream. Remember the failure rate of small businesses mentioned earlier.

And it’s very prudent to have some other substantial funds set aside just in case this doesn’t work out.

Don’t put all of your retirement “eggs” into this one “basket.”

Is this something that’s right for everyone? Of course not, but it just might be the right fit for that great idea you’ve been hatching for a long time, just wondering how the heck you were going to come up with the funds to make it happen.

ROBS (rollover-as-business-startup) could be the solution.

And for heaven’s sake do your homework first.

Here are some additional resources if you want to find out more about the ROBS process.

For more information about ROBS, please contact a retirement expert from the IRA Financial Group @ 800.472.0646 today.

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Feb 12

The Advantages of Using ROBS to Start Your Business

When it comes to using retirement funds to buy or finance a business that you or another “disqualified person” will be involved in personally, there is only one legal way to do it and that is through the Business Acquisition Solution, also known as a Rollover Business Start-Up (ROBS). The ROBS solution takes advantage of an exception in the tax code under Internal Revenue Code (“IRC”) Section 4975(d) that allows one to use 401(k) plan funds to buy stock in a “C” Corporation, which is known as “qualifying employer securities”. The exception to the IRS prohibited transaction rules found in IRC 4975(d) requires that a 401(k) plan buy “qualifying employer securities”, which is defined as stock of a “C” Corporation. This is the reason why one cannot use a self-directed IRA LLC to invest in a business the IRA holder or a disqualified person will be personally involved in or why a 401(k) plan cannot invest in an LLC in which the plan participant or disqualified person will be involved in without triggering the prohibited transaction rules.

So How Does the ROBS Solution Work?

The structure typically involves the following sequential steps:

1. An entrepreneur or existing business owner establishes a new C Corporation;

2. The C Corporation adopts a prototype 401(k) plan that specifically permits plan participants to direct the investment of their plan accounts into a selection of investment options, including employer stock, also known as “qualifying employer securities.”

3. The entrepreneur elects to participate in the new 401(k) plan and, as permitted by the plan, directs a rollover or trustee-to-trustee transfer of retirement funds from another qualified retirement plan into the newly adopted 401(k) plan;

4. The entrepreneur then directs the investment of his or her 401(k) plan account to purchase the C Corporation’s newly issued stock at fair market value ( i.e., the amount that the entrepreneur wishes to invest in the new business); and finally

5.The C Corporation utilizes the proceeds from the sale of stock to purchase an existing business or to begin a new venture.

What Are Some of the Advantages of the ROBS Solution?

  • Save Money: The primary advantage of establishing a ROBS solution is to be able to use your retirement funds to invest in a business you will be personally involved in without having to pay tax the retirement funds you wish to use as a distribution to tax and potentially penalty. By being able to invest the retirement funds into the business without having to take a taxable distribution and a 10% early distribution penalty if under the age of 591/2, using a ROBS solution could save someone close to 45% of the distribution amount. For example, if someone under the age of 591/2 was looking to use $100,000 of retirement funds to fund a business and ended up taking a taxable distribution of that amount, that individual would likely have to pay approximately 45% of the 100,000 or $45,000 in tax to the IRS when declaring the distribution on their tax return. The tax rate could be lower if the individual was in a lower income tax bracket or the retirement funds needed were insignificant, but using a ROBS solution would save having to pay tax and potentially a 10% penalty on that amount.
  • Invest in Yourself: The ROBS solution allows one to invest their retirement funds in a business that will be actively run by the retirement account holder. As a result, one is essentially investing their retirement funds in themselves rather than on Wall Street. Of course, not all businesses are successful. According to Bloomberg, close to 80% of new businesses fail in the first 18 months. Hence, investing your hard earned retirement funds in a new business is certainly a risk. However, it is a risk that you are legally entitled to take as per the Internal Revenue Code. Using retirement funds to invest in your business is not for everyone, but for those entrepreneurs that would rather invest in themselves than Wall Street, the ROBS solution is an option.
  • Diversification: There is a growing sentiment among financial advisors, especially after the 2008 financial crisis, that in order to protect your retirement funds from a market downturn, your retirement funds should be well diversified. One can generally not eliminate investment risk completely, but one can manage your level of risk. Every investment has some amount of risk, however, having your retirement funds invested in different types of investments, such as stocks, real estate, and even private businesses, can be a way of diversifying your retirement portfolio and better protecting your retirement funds. Also, it is believed that diversification can enable a retirement portfolio to grow both when markets boom and returns crumble in one sector One should certainly work with a financial planner and tax professional when looking at investment options, especially when it comes to using retirement funds to buy a business.
  • Earn a Salary: In order for one to be a participant of a 401(k) Plan, one needs to be an employee of the business, which adopted the plan. This is the reason why if you own Apple or IBM stock but don’t work at those companies, you cannot participate in their company 401(k) plans. Hence, in order to be eligible to participate in the corporation 401(k) plan you must become a W-2 employee of the C Corporation. For many entrepreneurs the ability to earn a salary and be actively involved in the business is the reason they are using a ROBS solution versus using a self-directed IRA.
  • Benefit from having a 401(k) Retirement Plan: One of the best ways for you to save toward your own retirement and ensure your future security is through an employer-sponsored 401(k) plan. Below are some of the advantages of offering and participating ion a 401(k) Plan.
  • Matching Contributions Many employers will match a portion of your savings: It’s like passing up free money if you don’t participate. A safe harbor 401(k) Plan, which is a popular type of 401(k) plan for small businesses, offer employees who participate in the plan a 3% matching contribution made by the employer. Thus, for example, if the employee earns $40,000 in salary during the year and contributes 3% of the salary of $1200 to the 401(k) plan, the employer would contribute an additional $1200 (3% of the salary) to the individual 401(k) plan account.
  • Retaining employees: with most businesses offering their employees retirement benefits, it is worthwhile for small businesses to compete for talented workers by implementing 401(k) benefits. Offering 401(k) plan benefits is a great way to retain key employees. In general, when potential hires are considering multiple job offers, they’ll compare those offers based on corporate culture, growth opportunities, and benefits packages. –
  • Easy Administration: 401(k) Plan administration is now easier and more cost-effective than ever with Internet options available to small employers. In addition, IRA Financial Group offers recordkeeping and third-party administration services for your plan allowing you to spend more time focusing on your business and less on your plan.
  • You Can Participate As Well: You are eligible to participate in the company 401(k) plan if you are an owner or an employee of the company that sponsor’s the 401(k) plan. Current regulations allow plan participants to contribute up to $18,000 ($24,000 if over the age of 50) of their income on a pre-tax basis each year. That means that in addition to your tax savings for offering the plan and providing matching contributions, you’ll receive yet another tax savings for participating in the plan. This savings can be substantial – an owner in the 35% tax bracket who made the maximum contribution would have saved approximately $6,500 in taxes in 2016.

To learn more about the benefits of the ROBS strategy, please contact a retirement tax expert at 800-472-0646.

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Dec 06

Trump Tax Plan May Boost Attractiveness Of Rollover Business Start-Up Solution (ROBS)

This article originally appeared on Forbes.com

The subject of business taxes was a popular theme during President-elect Trump’s election campaign and will surely become a hot topic during his first year as president.  President-elect Trump has stated that he favors a 15% corporate rate as part of his tax plan as well as eliminate the corporate alternative minimum tax. This rate would be available to all businesses, both small and large, that want to retain the profits within the business.

When it comes to using retirement funds to invest in a business involving the retirement account holder or any of his or her lineal descendants (“disqualified persons”) there is generally only one legal way to do it and it involves the purchase of “C” corporation stock (qualifying employer securities) by a 401(k) qualified retirement plan.  The structure is known as a “rollover business start-up” or “ROBS”.

Trump Tax Plan May Boost Attractiveness Of Rollover Business Start-Up Solution (ROBS)The Internal revenue Code explicitly permits the purchase of corporate stock by a 401(k) qualified plan.  Nevertheless, the ROBS structure remains somewhat controversial. Although the Internal Revenue Service (“IRS”) has repeatedly confirmed its legality, it continues to be on the radar of the IRS and Department of Labor (DOL) due to a lack of compliance in some cases.

The ROBS arrangement typically involves rolling over a pre-tax IRA or 401(k) plan account into a newly established 401(k) plan, which is sponsored by a “C” corporation and then investing the rollover funds in the stock of the “C” corporation.  The individual retirement account holder can then earn a reasonable salary as an employee of the business.

The advantage of the ROBS solution is that it does allow one to use all their pre-tax IRA or 401(k) funds to buy a business that they will be involved in personally as an employee without tax or penalty.

The primary downside of the ROBS structure is the use of a C corporation as the business entity, an independent legal entity owned by shareholders. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs. Corporations are known to have double tax, first, when the company makes a profit, and then to the shareholder on their personal return when dividends are paid. The highest corporate income tax rate is currently at 35%. A sole proprietorship, LLC, or “S” Corporation is treated as a pass-through entity for tax purposes.  In other words, a “C” Corporation would impose two taxes on corporate earnings: a corporate level tax and a shareholder tax on the dividends received.

In comparison, for a pass-through entity, such as an LLC, the profits bypass taxation at the corporate level and are distributed and taxed at the owner’s level.  For example, assuming a corporate and personal income tax rate of 25%, a C Corporation earning $100 would be subject to a tax of 25% ($25) at the corporate level and then the individual shareholder would be subject to a tax of $18.75 on the dividend received ($75 dividend multiplied by a 25% tax rate) for an overall tax of  $43.75. In the case of an LLC, there would be no corporate tax rate and the individual member would be required to pay just $25 in taxes ($100 of allocated profits multiplied by a tax rate of 25%).  Therefore, clearly the use of a C Corporation has been a big reason why many individuals have walked away from using a ROBS solution to buy a business with retirement funds and have instead opted for a taxable distribution.  However, that may all change in 2017 and beyond.

A reduction in the corporate tax rate to 15% as President-elect Trump has promised would certainly make C Corporations a more attractive form of doing business from a tax standpoint than before and should make the ROBS solution a far more attractive option for people looking to use retirement funds to buy a business in 2017 and beyond.

For more information about using your retirement funds to start a business, please contact us @ 8900.472.0646.

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Nov 03

Why Choose IRA Financial Group for Your Business Funding Venture?

The IRA Financial Group was founded by a group of top law firm tax and ERISA professionals who have worked at some of the largest law firms in the country, including White & Case LLP and Dewey & LeBoeuf LLP.

The legality of using retirement funds to purchase employer corporate stock is firmly established in the Internal Revenue Code and under ERISA law, specifically known as Rollover Business Startup or ROBS. Although codified under law, the IRS has been concerned that a number of promoters marketing this type of structure have not had the expertise to develop a structure that is fully compliant with IRS and ERISA rules and regulations. With this in mind, the IRA Financial Group’s in-house retirement tax professionals spent the last two years carefully studying IRS materials and guidance in order to design an IRS and ERISA compliant structure for using retirement funds to acquire or invest in a business tax-free!

Why Choose IRA Financial Group for Your Business Funding Venture?The Business Acquisition & Compliance Solution Structure (“BACSS”) was developed to specifically address and solve each of the non-compliant areas addressed by the IRS creating a business acquisition and funding solution that is in full compliance with IRS and ERISA rules and procedures. Unlike our competitors who have been offering this type of structure for many years, which according to the IRS, a significant portion have been found to be non-compliant, the IRA Financial Group has patiently waited for clear IRS guidance before offering a business acquisition structure that would be fully compliant with IRS and ERISA rules and procedures. Because the IRS has stressed the importance of compliance when using retirement funds to purchase a business, it is crucial to work with a company that is operated by a team of in-house tax and ERISA professionals who have worked at some of the largest law firms in the United States, including White & Case LLP and Dewey & LeBoeuf LLP to ensure the structure satisfies IRS and ERISA rules and procedures.

We have developed a process that ensures speed and compliance, by using standardized procedures that work via phone, e-mail, fax, and mail. Your funds will typically be ready for investment into your new or existing business within 14-21 days.

Call us today at 800-472-0646 to learn more about how you can use your retirement funds to start a new business or grow an existing business tax-free, in full IRS compliance, and without penalties!

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Oct 11

Why Use ROBS Opposed to a Self Directed IRA to Fund a Business

The Business Acquisition & Compliance Solution Structure (BACSS) also known as the “Rollover Business Start-Up” (“ROBS”) Solution is an IRS and ERISA approved structure that allows an individual to purchase a new or existing business with retirement funds and be active in the business without triggering any of the IRS prohibited transaction rules. The ROBS solution qualifies for a special exemption set forth under IRC 4975(d) to certain prohibited transaction rules, which do not apply to a Self-Directed IRA structure.

How Does the ROBS structure work?

The ROBS arrangement typically involves rolling over a prior IRA or 401(k) plan account into a newly established 401(k) plan, which a start-up C Corporation business sponsored, and then investing the rollover 401(k) Plan funds in the stock of the new C Corporation. The funds are then deposited in the C Corporation bank account and are available for use for business purposes.

The following is how a typical ROBS structure works:

  • 1. Jim, an entrepreneur or existing business owner, establishes a new C Corporation in the state where the business will be operating. The ROBS structure must involve a C Corporation and not an LLC or S Corporation because the exemption to the IRS prohibited transaction rules under IRC 4975(d) involves the purchase of “Qualifying Employer Securities”, which is defined as stock of a Corporation. Using an LLC would not satisfy this definition and only individuals can be shareholders of an S Corporation and a 401(k) Plan is a trust.
  • 2. The new C Corporation adopts a prototype 401(k) plan that specifically permits the plan participants, including Jim, to direct the investment of their plan accounts into a selection of investments options, including employer stock, also known as “qualifying employer securities.
  • 3. Jim elects to participate in the new 401(k) plan and, as permitted by the plan, directs a rollover of a prior employer’s 401(k) Plan funds into the newly adopted 401(k) plan.
  • 4. Jim then directs the investment of his or her 401(k) plan account to purchase the C Corporation’s newly issued stock at fair market value (i.e., the amount that Jim wishes to invest in the new business).
  • 5. Jim also invests personal funds equal to more than 1% of the purchase price so that the structure is not considered an Employee Stock Option Plan (ESOP).
  • 6. The C Corporation utilizes the proceeds from the sale of stock (the amount of rollover funds and personal funds used) to purchase the assets for the new business.
  • 7. Joe would be able to earn a salary from the revenues of the business as well as personally guarantee any business loan.

What is the Difference between using a Self-Directed Vs. ROBS structure to buy a business?

Why Use ROBS Opposed to a Self Directed IRA to Fund a BusinessIn a lot of respects, using a Self-Directed IRA LLC or a 401(k) Plan to purchase stock in a corporation would seem to be subject to the same rules. However, as described above, using 401(k) Plan funds and not IRA funds allows one to take advantage of the prohibited transaction exemption under IRC 4975(d) for “Qualifying Employer Securities.”

The recent U.S. Tax Court case Peek v. Commissioner, 140 T.C. No. 12 (May 9, 2013), highlights the risk and limitations involved when using a Self-Directed IRA to purchase business assets. In the Peek case, the taxpayers used IRA funds to invest in a corporation that ultimately purchased business assets. Because Mr. Peek used an IRA and not a 401(k) Plan to purchase the C Corporation stock, Mr. Peek was not able to earn a salary or personally guarantee a business loan, which ultimately was the cause of the IRS prohibited transaction rule violation.

The limitation of using a Self-Directed IRA LLC to buy a business is that the individual retirement account business owner would not be able to be actively involved in the business, earn a salary, or even personally guarantee a business loan. Whereas, if the business owner used a ROBS strategy, that individual would be able to be actively involved in the business, earn a salary, as well as personally guarantee a business loan without triggering the IRS prohibited transaction rules.

To learn more about the benefits of the ROBS (Rollover Business Startup) strategy, please contact a retirement tax expert at 800-472-0646.

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Aug 23

Can You Use a 401(k) to Invest in a New or Existing Business?

If structured correctly, you may use your 401(k) plan funds to invest in a business. IRA Financial Group’s in-house retirement tax professionals have spent the last two years developing an IRS and ERISA compliant structure for using retirement funds to acquire or invest in a business tax free! Unlike our competitors who have been offering this type of structure for many years, the IRA Financial Group has patiently waited for clear IRS guidance in order to develop a structure that would be fully compliant with IRS and ERISA rules and procedures.

Can You Use a 401(k) to Invest in a New or Existing Business?

The Business Acquisition Compliance and Support Structure (“BACSS”) was designed as an IRS and ERISA compliant structure for using retirement funds to acquire or invest in a business tax free! The Internal Revenue Code and ERISA law firmly establishes that the use of retirement funds to purchase stock of a sponsoring company is permitted as long as certain IRS and ERISA rules are followed. Based on IRS guidance, it is important that a qualified retirement plan be adopted by the new company and that it be used and operated as such.  It is also required that the value of the stock being purchased by the new Plan be valued by an independent appraisal and that the qualified retirement plan be made available to all eligible company’s employees.  Because the IRS has stressed the importance of compliance, it is crucial to work with a company that is operated by a team of in-house tax and ERISA professionals who have worked at some of the largest law firms in the United States, including White & Case LLP and Dewey & LeBoeuf LLP, to ensure the legality of the structure.

Please contact one of our Retirement Experts at 800-472-0646 for more information.

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Jul 21

How Does the Rollover Business Start-up Work?

The legality of using retirement funds to purchase employer corporate stock is firmly established in the Internal Revenue Code and under ERISA law. The IRA Financial Group’s in-house retirement tax professionals have spent the last two years developing an IRS and ERISA compliant structure for using retirement funds to acquire or invest in a business tax-free! Because the IRS has stressed the importance of compliance when using retirement funds to purchase a business, it is crucial to work with a company that is operated by a team of in-house tax and ERISA professionals who have worked at some of the largest law firms in the United States, including White & Case LLP and Dewey & LeBoeuf LLP to ensure the structure satisfies IRS and ERISA rules and procedures. The retirement tax professionals at the IRA Financial Group have developed a process that ensures speed and compliance, by using standardized procedures that work via phone, e-mail, fax, and mail. Your funds will be ready for investment into your new or existing business within 14-21 days.

Step 1 – Establishment of New Corporation

IRA Financial Group’s in-house tax and ERISA professionals will establish a corporation and ensure that the incorporation process is completed accurately in accordance with state law. Our in-house retirement tax professionals have significant experience with the incorporation process in all 50 states and the District of Columbia. Your corporation will be incorporated in the State where you will conduct business or in multiple states if the business will be conducted in more than one state. The IRA Financial Group’s retirement tax professionals will assist you in satisfying all internal corporate formalities, such as establishing a board of directors, appointing officers, and completing the corporate resolution and minutes. Upon the incorporation of the entity, our in-house retirement tax professionals will acquire an Employer Tax ID Number with the IRS for your new corporation.

Step 2 – New Corporation Adopts 401(k) Plan

The IRA Financial Group’s in-house ERISA professionals will establish an IRS approved 401(k) Plan for your new corporation. Plan documents will be drafted so that the new corporation will be the sponsor of the new 401(k) Plan. The Plan documents will appoint the new business owner as the trustee of the plan and will be customized based on the financial goals of you and the business. The Plan will be specifically drafted to allow for investment in your new corporation.

Step 3 – Rollover/Transfer of Funds to your New Corporation

The IRA Financial group’s in-house ERISA professionals will guide you through the process of opening a bank account for your new 401(k) Plan (the account can be opened at any local bank, credit union, or financial institution) as well as helping you complete the necessary transfer/rollover documents to transfer your retirement funds from your previous employer or IRA to your company’s new 401(k) Plan tax-free. Our in-house ERISA professionals will guide you through the entire rollover/transfer process so your retirement funds will be transferred to your new 401(k) Plan in an expedited and tax-free manner.

Step 4 – 401(k) Plan Invests in the new Corporation

The IRA Financial Group’s in-house retirement tax professionals will draft a customized stock purchase agreement detailing the 401(k) Plan’s purchase of new company stock. The IRA Financial Group will coordinate with the selected independent business appraisal to assure that the stock purchase agreement is in compliance with IRS and ERISA rules. Once the 401(k) Plan has purchased stock in the new corporation, the corporation will have the funds to purchase new business assets or help grow the business.

Step 5 – Compliance with IRS and ERISA Rules

Once your retirement funds have been invested in your new business, the retirement tax professionals at the IRA Financial Group will continue to work with you to ensure that the structure remains compliant with IRS and ERISA rules and procedures. In the case of a corporation with employees, the IRA Financial Group will work with a third-party administrator to ensure that the Plan remains compliant so that the structure continues to meet IRS and ERISA rules and requirements.

Work Directly with our on-site tax and ERISA professionals!

Each client of the IRA Financial Group is assigned an individual retirement tax professional who will customize a structure that satisfies his or her financial and retirement needs while ensuring the structure is developed in full IRS & ERISA compliance!

We have developed a process that ensures speed and compliance, by using standardized procedures that work via phone, e-mail, fax, and mail. Your funds will be ready for investment into your new or existing business within 14-21 days.

Call us today at 800-472-0646 to learn more about how you can use your retirement funds to start a new business or grow an existing business tax-free, in full IRS compliance, and without penalties!

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Jul 08

What Type of Corporation Do You Use when Using ROBS?

The Internal Revenue Code and ERISA law require the use of a “C” Corporation for using retirement funds to acquire stock in a business. The reason for this is that Section 407(d)(1) of ERISA defines the term “employer security,” in part, to mean a security issued by an employer of employees by the plan, or by an affiliate of such employer. Under section 407(d)(5) of ERISA, the term “qualifying employer security” includes an employer security, which has been understood to mean stock. The term “stock” is not defined in Title I of ERISA, however, most tax commentators believe this to mean the stock of a corporation and not an interest in a limited liability company or partnership. The use of an S Corporation for this structure is not permitted because a qualified plan cannot be an S Corporation shareholder. Generally only individuals are permitted to be S Corporation shareholders.

What is a C Corporation?

A C Corporation is a business term that is used to distinguish this type of entity from others, as its profits are taxed separately from its owners under sub-chapter C of the Internal Revenue Code. A C corporation is owned by shareholders who must elect a board of directors to make business decisions and oversee policies. A C Corporation provides its shareholders with limited liability protection. Thus, the C Corporation’s shareholders would not stand personally liable for debts incurred by the C Corporation. They cannot be sued individually for corporate wrongdoings.

What Type of Corporation Do You Use when Using ROBS?Will I pay more tax if my business is set-up as a C Corporation?

In general, a C corporation can be used to split the corporate profits among the owners and the corporation. This can result in overall tax savings. The tax rate for a corporation is usually less than that for an individual, especially for the first $50,000 of taxable income. In addition, a C Corporation can deduct the cost of business expenses, such as salary, thus, further reducing the company’s taxable income. For example, the operators of the corporation may withdraw reasonable salaries, which are deductible by the corporation. These salaries are therefore free from tax at the corporate level (though the recipients will have to pay income tax, and both recipients and the business will have to pay FICA tax, on them). In some cases, the entire net profit of a C Corporation may be offset by salaries to the shareholders, so that no corporate income tax is due.

Do I need an independent appraisal for the purchase of the new corporation stock?

Yes. Pursuant to ERISA rules, a 401(k) Plan is permitted to acquire “qualified employer security” provided that the acquisition or sale is for adequate consideration. In the October 1, 2008 Memorandum, the IRS stated that an exchange of company stock between the plan and the new company sponsor would be a prohibited transaction, unless the requirements of ERISA Section 408(e) are met. Therefore, valuation of the capitalization of the new company is a relevant issue. Since the company is new, there could be a question of whether it is indeed worth the value of the tax-deferred assets for which it was exchanged. If the transaction has not been for adequate consideration, it would have to be corrected. On August 27, 2010, on the public phone forum, the IRS reaffirmed their position on the need for an independent appraisal to value the purchased corporate stock. The IRA Financial Group will assist you in identifying an independent third-party business appraisal or CPA to help value the stock of the new or existing company.

For more information about using ROBS to start your business, please contact us @ 800.472.0646.

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May 27

Advantages of Using the Rollover Business Startup

Tax Advantages: With the Business Acquisition & Compliance Solution Structure (BACSS), also known as ROBS, you have the ability to use your retirement funds to acquire a new business or grow an existing business tax-free!

Start or Grow a Business Tax-Free: With BACSS, you can access your retirement funds to start or grow a business tax free and without penalty!

Access Funds without Penalties: Accessing your retirement funds can prove expensive if not structured properly. Distributions before retirement age can cost you up to 45% in taxes and penalties. With BACSS, you can access your retirement funds to start or grow a business tax-free and without penalty!

Acquire or Build a Business with No Debt: With BACSS, you can start or grow a business without ever borrowing a penny or touching the home equity you worked so hard to build.

Control your Future: With BACSS, you will be in control of your retirement funds. BACSS is designed to make you the trustee of the plan giving you “Checkbook Control” over your retirement funds. As trustee of the plan you will have the ability to invest your funds to acquire or grow a business tax-free and without penalty!

Compliance with IRS and ERISA Rules: BACSS was designed as an IRS and ERISA compliant structure for using retirement funds to acquire or invest in a business tax-free! The IRA Financial Group’s in-house retirement tax professionals spent the last two years carefully studying IRS guidance in order to design an IRS and ERISA compliant structure for using retirement funds to acquire or invest in a business tax-free! Unlike our competitors who have been offering this type of structure for many years, prior to receiving guidance from the IRS and with a significant portion of their activity having been found to be non-compliant, the IRA Financial Group has patiently waited for clear IRS guidance before offering a structure that would be fully compliant with IRS and ERISA rules and procedures. Because the IRS has stressed the importance of compliance when using retirement funds to purchase a business, it is crucial to work with a company that is operated by a team of in-house tax and ERISA professionals who have worked at some of the largest law firms in the United States, including White & Case LLP and Dewey & LeBoeuf LLP to ensure a fully compliant structure.

Speed: We have developed a process that ensures speed and compliance, by using standardized procedures that work via phone, e-mail, fax, and mail. Your funds will be ready for investment into your new or existing business within 14-21 days.

Value: With the IRA Financial Group, you will be working directly with our in-house tax and ERISA professionals to design an IRS and ERISA compliant structure that will allow you to use your retirement funds to acquire or grow a business tax-free at a fair and reasonable price.

Use your retirement funds to purchase a new business or franchise tax-free and without penalty!

It’s 100% IRS compliant.

Call us today at 800-472-0646 to learn more about how you can use your retirement funds to start a new business or grow an existing business tax-free, in full IRS compliance, and without penalties!

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Apr 29

The Law Concerning ROBS to Fund a Business

The Internal Revenue Code and ERISA have firmly codified the ability to use retirement funds to invest in the stock of a sponsoring company as long as certain IRS and ERISA rules are followed.

Internal Revenue Code Section 4975(c) includes a list of transactions that the IRS deems “prohibited”. However, Internal Revenue Code Section 4975(d) lists a number of exemptions to the prohibited transaction rules. Specifically Internal Revenue Code Section 4975(d)(13) lists an exemption for any transaction which is exempt from section 406 of the Employee Retirement Income Security Act of 1974 (ERISA) by reason of section 408(e) of such Act.

Section 408(e) provides that section 406 shall not apply to the acquisition or sale by a plan of qualifying employer securities (as defined in section 407(d)(5), provided that: (1) the acquisition or sale is for adequate consideration; (2) no commission is charged with respect to the acquisition or sale; and (3) the plan is an eligible individual account plan (as defined in section 407(d)(3)). A 401(k) plan fits in to this definition.

Pursuant to ERISA Section 406, the acquisition or sale must be for “adequate consideration.” Except in the case of a “marketable obligation”, adequate consideration for this purpose means a price not less favorable than the price determined under ERISA § 3(18),subject to a requirement that the acquisition or sale must be for “adequate consideration.” An exchange of company stock between the plan and its employer-sponsor would be a prohibited transaction, unless the requirements of ERISA § 408(e) are met.

The Law Concerning ROBS to Fund a BusinessThe exemptions in 4975(d) shall not apply to items described in Internal Revenue Code Section 4975(f)(6). Section 4975(f)(6)(A) states that the exemption of 4975(d) shall not apply in the case of a trust described in Internal Revenue Code Section 401(a), which is part of a plan providing contributions or benefits for employees some or all of whom are owner-employees (other than paragraphs (9) and (12)) shall not apply to a transaction in which the plan directly or indirectly— (i) lends any part of the corpus or income of the plan to, (ii) pays any compensation for personal services rendered to the plan to, or (iii) acquires for the plan any property from or sells any property to, any such owner-employee, a member of the family of any such owner-employee, or any corporation in which any such owner-employee owns, directly or indirectly, 50 percent or more of the total combined voting power of all classes of stock entitled to vote or 50 percent or more of the total value of shares of all classes of stock of the corporation. Therefore, since the Plan will be purchasing “qualified employer securities” directly from the newly formed corporation, the purchase of corporate stock will not be treated as a prohibited transaction pursuant to Internal Revenue Code Section 4975.

ERISA Section 407(b)(1) generally places limitations on the acquisition and holding of Qualifying Employer Securities (normally 10% of plan assets). However, the Section includes an exception for “eligible individual account plans” (ERISA 407(b)(1)). As set forth in ERISA Section 407(d)(3), a qualified profit sharing plan is included in the definition of “eligible individual account plans”. In addition, pursuant to ERISA Section 404(a)(2), these plans do not violate ERISA’s diversification and, to the extent it requires diversification, prudence requirements.

Call us today at 800-472-0646 to learn more about how you can use your retirement funds to start a new business or grow an existing business tax-free, in full IRS compliance, and without penalties!

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