Leaving your current job and have retirement funds? Why not invest in yourself instead of a falling stock market. With the recent U.S. debt downgrade by Standard & Poor and its expected negative impact on the financial markets, why not use your IRA or 401(k) funds on a business you can run, manage, and even earn a salary from.
With the Business Acquisition structure, a new C Corporation is formed which will adopt a 401(k) Qualified Plan. Your existing retirement funds can then be rolled into the newly adopted 401(k) Plan tax-free. The 401(k) Plan will then purchase the stock of the new corporation. The new corporation will then use those funds to purchase a new business or franchise tax-free!
With the IRS compliant Business Acquisition Structure, you can earn a Reasonable Salary from your New Franchise. You can also use your new 401(k) Plan to make tax high deductible contributions – $49,000 ($54,500 if your are over the age of 50).
What does the IRS Say about this?
The Internal revenue Code explicitly permits the purchase of corporate stock by a 401(k) Qualified Plan. The IRS has repeatedly confirmed that the structure is legal but has expressed some concern about the potential or abuse by individual’s not being properly advised by tax professionals. For example, the IRS has documented the following instances of abuse when it comes to use a Rollover Business Strategy (ROBS) to invest retirement funds in a business: (i) the employees of the business are not properly informed that a 401(k) qualified plan has been adopted by the business and that they are eligible to participate, (ii) the individual established the structure with no intention to use for business purpose and the sole purpose for establishment was to get access to the retirement funds without penalty, or (iii) an individual would use the structure to purchase assets for personal use with the retirement funds.
Thus, the IRS has stressed that it is imperative that when using retirement funds to establish or fund a business, one should work with qualified tax professionals who have experience in this area and could make sure the structure is established in full compliance with IRS and ERISA rules and procedures.
The Business Acquisition structure is really the only legal structure that once can use to invest retirement funds into a business they will operate and be employed by. With a self directed IRA LLC, an individual can invest retirement funds in a private business, but not a business that he or she would be involved in – that would be considered a prohibited transaction pursuant to Internal Revenue Code 4975. Whereas, with a Solo 401K, an individual could borrow up to $50,000 or 50% of his or her account value whichever is less and use that loan for any purpose, including starting or financing a business. However, if an individual required more than $50,000 for a business, then the Business Acquisition structure is the only solution that will allow one to use their retirement funds to start or finance a business tax-free and without penalty!