Self-Invested
Can your retirement savings help solve your financing problems?
Gaining access to startup capital is often a huge hurdle. Now
many entrepreneurs are turning to companies like BeneTrends Inc.,
Directed Equity and Equity Trust Co. to get early access to
retirement savings--without the normal penalties.
How does it work? Len Fischer, founder of San Diego-based
BeneTrends, explains his company's four-step process. First, a
C corporation is established for the new business, and a retirement
plan is then created under the new C corporation. Next, funds are
rolled over from the person's existing retirement plan into the
C corporation's new retirement plan. Finally, the new
retirement plan purchases stock in the C corporation, leaving the
capital in the business owner's hands. This process takes about
two to four weeks and costs $4,800 plus state filing fees.
Don Patrick, managing director of Integrated Financial Group, a
financial planning firm in
Atlanta, offers the following advice to avoid potential problems
with this type of financing:
- Carefully research the company that carries out the
process to make sure it's legitimate.
- Get an IRS letter ruling that documents approval of your
individual situation.
- Operate the C corporation properly, as there's a
higher chance of being audited due to both the type of corporation
and the type of financing used.
- Comply with the main principles of the Employee
Retirement Income Security Act of 1974.
- Keep in mind that losses cannot be deducted if the
business fails.
- Employ a team of professionals. "Retain a CPA, an
attorney and a financial planner, and let them work as a
team," says Patrick. "This is still an area that's
[on] the fringe of things."
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