All, I am looking to set up a Self-Directed 401k plan to invest private stock in my corporation. I understand the process and was going to use a third-party to help setup the plan. I planned to rollover the funds from my existing 401k into this plan once I got it setup. Problem is the third party companies all are charging $5,000 and up to do this. Does anyone know of a more in-expensive alternative?
Seems to me you could accomplish the same thing yourself just by taking the time to research this out on the Internet. You already understand the process, so you already have have half of the battle won. Now you just need to figure out the IRS regulatory hoops and your own state's requirements to do this legally.
So many people run out and spend thousands of dollars on 3rd party solutions and / or attorneys when the vast majority of the information you need to know is available free, provided you are willing to invest the time to read through a bunch of boring regulatory pages as you read through the laws and legal matter appeal court decisions that have developed in relation to the laws whenever you are unsure of how a paragraph applies. You can spend the money for someone else to read it and tell it to you or you can read it for yourself. How much is your time worth?
This website below is my primary research friend. I use it constantly. It is something called an intelligent agency website - it sends out a query to all of the major search engines simultaneously - Google, Yahoo, AskJeeves, etc. and gives you back all the search results immediately.
http://www.dogpile.com/
Another idea is startup a 401k with a less expensive provider and take up to a $50K loan from your 401k. You pay back interest to yourself and no tax consequence assuming you pay it all back. Sharebuilder401k.com is a good choice.
Goodluck,
Stuart
I'm interested in doing the same thing - have you figured out how? Is it legal?
I am checking the matter, However, so far, I haven't got 100 % sure of this issue,
Aquipment. Let's say that I am going to use $100,000 from my 401k to buy the stock of the corporation I form to start a new business venture. I could do all of the research including reading the IRC, the Revenue Procedures, the Treasury Regs, etc and HOPE that I have explored and discovered all of the mines hidden in that field.
If I am right I save $5,000 in fees to a guy who is an expert and has his business reputation on the line for the deal.
If I am wrong I owe the IRS about $50,000 in taxes and penalties PLUS the exposure to substantial understatement of income (think criminal investigation division) and the drama that goes with it. So where is this money going to come from?
I am not saying that $5,000 isn't alot of money, but have a definitely penny wise and pound foolish view of this transaction.
Don't touch your 401K ... once you roll over that 401 to private stock you will be taxed 28% and extra 10% penaly. You need to check with more people before you make a great big mistake.
Dean
I have heard of companies like Guidant Financial, Benitrens, Asset Exchange Group, NAFEP, (big ones out there offering this) that allow you to fund your own business with retirement dollars, however, these 401K into your C-Corp structures are being scrutinized by the IRS, as well as the companies that are setting them up. Check out the IRS website, they have a memo that talks about Rollover as business startup (ROBS) arrangements. They are calling it a scheme.
If you own less than 50% of the company you may be able to use a self directed IRA custodian to loan money to the company. Even this could be questionable if you are considered a Fiduciary to your IRA and are benefiting from the loan or capitalization into the company.
There is another strategy called the IRA-LLC or Truly Self Directed IRA that gives you more flexibility with your retirement funds, but I don't think it is going to allow you to fund your business. Your best bet is to try and borrow money from your 401K.
Don't pay $5,000 to a company that knows what they are doing and don't pay any less to a company or individual that doesn't know what they are doing.
I work with hundreds of clients as legal counsel in setting up such financing arrangements. I do not create these products myself. There is one company I am aware of who might be able to save you a grand or so but your figures are in the ballpark for the major players. One issue many people run into is the investments allowed by the plan. I have investigated numerous (less expensive) plans to see if they could be used or modified for this approach. So far I haven't found one. You need a 401(k) plan that both has an IRS determination letter and allows for investment into the parent corporation. If you start form scratch with a plan you need a determination letter and will probably wish you had used a third party company.
The rules are numerous and complicated. You need to be able to demonstrate a prudent investment, allow participation by other employees, administer the plan under all ERISA rules, invest the money in the proper manner that doesn't trigger prohibited transactions. The plan should allow for investments other than the company stock (i.e. not inadvertently create employee stock options via qualified money unless that is really what you want but more complicated).
Although I will only offer specific legal advice to clients, I am available to answer a general question or two at frank@seldenyoungs.com
If you are willing to take at least $20,000 from your retirement account the information on my website may help you to use your 401k to start a business.
What are the advantages? For one you will minimize debt that comes with starting a new business. Second you will enhance your cash flow. Third you get money to stimulate business growth which equals equity. Fourth you will be taking advantage of tax benefits.
Typically you will get your funding in two to three weeks. You could be less than a month away to starting that new business with a 401k or IRA. http://gimmethatbusinessforsale.com/Form_can_i_use_my_401k_to_buy_a_business...
